Organization for Competitive Intelligence

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Competitive, or business, intelligence is a powerful new management tool that enhances a corporation’s ability to succeed in today’s highly competitive global markets. It provides early warning intelligence and a framework for better understanding and countering competitors’ initiatives. Competitive activities can be monitored in-house or assigned to an outside firm. A recent study indicates that over 500 U.S. firms are involved or interested in running their own competitive intelligence activities. Usually, companies depend partly on their own people and partly on external help to scan the competitive environment. Within the organization, competitive information should be acquired both at the corporate level and at the SBU level. At the corporate level, competitive intelligence is concerned with competitors’ investment strengths and priorities. At the SBU level, the major interest is in marketing strategy, that is, product, pricing, distribution, and promotion strategies that a competitor is likely to pursue. The true payoff of competitive intelligence comes from the SBU review. Organizationally, the competitive intelligence task can be assigned to an SBU strategic planner, to a marketing person within the SBU who may be a marketing research or a product/market manager, or to a staff person. Whoever is given the task of gathering competitive intelligence should be allowed adequate time and money to do a thorough job. As far as outside help is concerned, three main types of organizations may be hired to gather competitive information. First, many marketing research firms (e.g., A.C. Nielsen, Frost and Sullivan, SRI International, Predicasts) provide different types of competitive information, some on a regular basis and others on an ad hoc arrangement. Second, clipping services scan newspapers, financial journals, trade journals, and business publications for articles concerning designated competitors and make copies of relevant clippings for their clients. Third, different brokerage firms specialize in gathering information on various industries. Arrangements may be made with brokerage firms to have regular access to their information on a particular industry.

SEEKING COMPETITIVE ADVANTAGE To outperform competitors and to grow despite them, a company must understand why competition prevails, why firms attack, and how firms respond. Insights into competitors’ perspectives can be gained by undertaking two types of analysis: industry and comparative analysis. Industry analysis assesses the attractiveness of a market based on its economic structure. Comparative analysis indicates how every firm in a particular market is likely to perform, given the structure of the industry.

Industry Analysis Every industry has a few peculiar characteristics. These characteristics are bound by time and thus are subject to change. We may call them the dynamics of the industry. No matter how hard a company tries, if it fails to fit into the dynamics of the industry, ultimate success may be difficult to achieve. An example of how the perspectives of an entire industry may change over time is provided by the cosmetics industry. The cosmetics business was traditionally run according to personal experience and judgment, by the seat-of-thepants, so to speak, with ultimate dependence on the marketing genius of inventors. In the 1980s, a variety of pressures began to engulf the industry. The regulatory climate became tougher. Consumers have become more demanding and are fewer in number. Although the number of working women continues to rise, this increase has not offset another more significant demographic change: The population of teenagers - traditionally the heaviest and most experimental makeup users - has been declining. In 1995, there were 15 percent fewer 18- to 24-year-olds than in 1985. As a result, sales of cosmetics are projected to increase only about 2.5 percent per year to the year 2000. These shifts, along with unstable economic conditions and rising costs, have made profits smaller. In the 1980s, several pharmaceutical and packaged-goods companies, including Colgate- Palmolive Co., Eli Lilly and Co., Pfizer, and Schering Plough, acquired cosmetics companies. Among these, only Schering Plough, which makes the mass market Maybelline, has maintained a meaningful business. Colgate, which acquired Helena Rubenstein, sold the brand seven years later after it languished. At the start of the 1990s, the industry began to change again. New mass marketers Procter & Gamble and Unilever entered the arena, bringing with them their great experience producing mundane products such as soap and toilet paper, sparking disdain in the glamorous cosmetics trade.

However, the mammoth marketing clout of these giant packaged-goods companies also sparked fear. Procter & Gamble bought Noxell Corporation, producer of Cover Girl and Clarion makeup, making it the top marketer of cosmetics in mass market outlets. Unilever acquired Faberge and Elizabeth Arden. These changes made competition in the industry fierce. Although capital investment in the industry is small, inventory and distribution costs are extremely high, partly because of the number of shades and textures required in each product line. For example, nail polish and lipstick must be available in more than 50 different shades. The cosmetics industry has gone through a tremendous change since the 1980s. In those days, success in the industry depended on having a glamorous product. As has been observed, Revlon was manufacturing lipstick in its factories, but it was selling beautiful lips. Today, however, success rests on such nutsand- bolts matters as sharp positioning to serve a neatly defined segment and securing distribution to achieve specific objectives in sales, profit, and market share. Basic inventory and financial controls, budgeting, and planning are now utilized to the fullest extent to cut costs and waste: “In contrast to the glitzy, intuitive world of cosmetics, Unilever and P&G are the habitats of organization men in grey-flannel suits. Both companies rely on extensive market research.”11 This type of shift in direction and style in an industry has important ramifications for marketing strategy. The dynamics of an industry may be understood by considering the following factors:

1. Scope of competitors’ businesses (i.e., location and number of industries).

2. New entrants in the industry.

3. Other current and potential offerings that appear to serve similar functions or satisfy the same need.

4. Industry’s ability to raise capital, attract people, avoid government probing, and compete effectively for consumer dollars.

5. Industry’s current practices (price setting, warranties, distribution structure, after-sales service, etc.).

6. Trends in volume, costs, prices, and return on investment, compared with other industries.

7. Industry profit economics (the key factors determining profits: volume, materials, labor, capital investment, market penetration, and dealer strength).

8. Ease of entry into the industry, including capital investment.

9. Relationship between current and future demand and manufacturing capacity and its probable effects on prices and profits.

10. Effect of integration, both forward and backward.

11. Effect of cyclical swings in the relationship between supply and demand.

To formulate marketing strategy, a company should determine the relevance of each of these factors in its industry and the position it occupies with respect to competitors. An attempt should be made to highlight the dynamics of the company in the industry environment.