Competitive intelligence is the publicly available information on competitors, current and potential, that serves as an important input in formulating marketing strategy. No general would order an army to march without first fully knowing the enemy’s position and intentions. Likewise, before deciding which competitive moves to make, a firm must be aware of the perspectives of its competitors. Competitive intelligence includes information beyond industry statistics and trade gossip. It involves close observation of competitors to learn what they do best and why and where they are weak. No self-respecting business admits to not doing an adequate job of scanning the competitive environment, but what sets the outstanding companies apart from the merely self-respecting ones is that they watch their competition in such depth and with such dedication that, as a marketing executive once remarked to the author, “The information on competitive moves reaches them before even the management of the competing company learns about it.’’ Three types of competitive intelligence may be distinguished: defensive, passive, and offensive intelligence. Defensive intelligence, as the name suggests, is gathered to avoid being caught off-balance. Adeliberate attempt is made to gather information on the competition in a structured fashion and to keep track of moves that are relevant to the firm’s business. Passive intelligence is ad hoc information gathered for a specific decision. Acompany may, for example, seek information on a competitor’s sales compensation plan when devising its own compensation plan. Finally, offensive intelligence is undertaken to identify new opportunities. From a strategic perspective, offensive intelligence is the most relevant.

Strategic Usefulness of Competitive Intelligence

Such information as how competitors make, test, distribute, price, and promote their products can go a long way in developing a viable marketing strategy. The Ford Motor Company, for example, has an ongoing program for tearing down competitors’ products to learn about their cost structure. Based on these conclusions, Ford was able to arrive at a firm strategic decision not to assemble a “Mini.’’ The following example compares two companies that decided to enter the automatic dishwasher market at about the same time. One of the companies ignored the competition, floundered, and eventually abandoned the field; the other did a superior job of learning from the competition and came out on top. When the CEO of the first company, a British company, learned from his marketing department about the market growth potential for dishwashers and about current competitors’ shares, he lost no time setting out to develop a suitable machine. Finding little useful information available on dishwasher design, the director of research and development decided to begin by investigating the basic mechanics of the dishwashing process. Accordingly, she set up a series of pilot projects to evaluate the cleaning performance of different jet configurations, the merits of alternative washing-arm designs, and the varying results obtained with different types and quantities of detergent on different washing loads. At the end of a year she had amassed a great deal of useful knowledge.

She also had a pilot machine running that cleaned dishes well and a design concept for a production version. But considerable development work was still needed before the prototype could be declared a satisfactory basis for manufacture. To complicate matters, management had neglected to establish effective linkages among the company’s three main functions - marketing, technology, and production. So it was not until the technologists had produced the prototype and design concepts that marketing and production began asking for revisions and suggesting new ideas, further delaying the development of a marketable product. So much for the first company, with its fairly typical traditional response to market opportunities. The second company, which happened to be Japanese, started with the same marketing intelligence but responded in a very different fashion. First, it bought three units of every available competitive dishwasher. Next, management formed four special teams: (a) a product test group of marketing and technical staff, (b) a design team of technologists and production people, (c) a distribution team of marketing and production staff, and (d) a field team of production staff. The product test group was given one of each competitive model and asked to evaluate performance: dishwashing effectiveness, ease of use, and reliability (frequency and cause of breakdown). The remaining two units of each competitive model were given to the design team, who stripped down one of each pair to determine the number and variety of parts, the cost of each part, and the ease of assembly. The remaining units were stripped down to “life-test’’ each component, to identify design improvements and potential sources of supply, and to develop a comprehensive picture of each competitor’s technology.

Meanwhile, the distribution team was evaluating each competitor’s sales and distribution system (numbers of outlets, product availability, and service offered), and the field team was investigating competitors’ factories and evaluating their production facilities in terms of cost of labor, cost of supplies, and plant productivity. All this investigating took a little less than a year. At the end of that time, the Japanese still knew a lot less about the physics and chemistry of dishwashing than their British rivals, but the knowledge developed by their business teams had put them far ahead. In two more months they had designed a product that outperformed the best of the competition, yet would cost 30 percent less to build, based on a preproduction prototype and production process design. They also had a marketing plan for introducing the new dishwasher to the Japanese domestic market before taking it overseas. This plan positioned the product relative to the competition and defined distribution system requirements in terms of stocking and service levels needed to meet the expected production rate. Finally, the Japanese had prepared detailed plans for building a new factory, establishing supply contracts, and training the labor force. The denouement of this story is what one might expect: The competitive Japanese manufacturer brought its new product to market two years ahead of the more traditionally minded British manufacturer and achieved its planned market share 10 weeks later. The traditional company steadily lost money and eventually dropped out of the market. As the above anecdote shows, competitive analysis has three major objectives:

1. It allows you to understand your position of comparative advantage and your competitors’ positions of comparative advantage.

2. It allows you to understand your competitors’ strategies - past, present, and as they are likely to be in the future.

3. It is a key criterion of strategy selection, the element that makes your strategies come alive in the real world.