A business may face competition from various sources either within or outside its industry. Competition may come from essentially similar products or from substitutes. The competitor may be a small firm or a large multinational corporation. To gain an adequate perspective on the competition, a firm needs to identify all current and potential sources of competition.
Competition is triggered when different industries try to serve the same customer needs and demands. For example, a customer's entertainment needs may be filled by television, sports, publishing, or travel. New industries may also enter the arena to satisfy entertainment needs. In the early 1980s, for example, the computer industry entered the entertainment field with video games.
Different industries position themselves to serve different customer demands—existing, latent, and incipient. Existing demand occurs when a product is bought to satisfy a recognized need. An example is Swatch Watch to determine time. Latent demand refers to a situation where a particular need has been recognized, but no products have yet been offered to satisfy the need. Sony tapped the latent demand through Walkman for the attraction of "music on the move." Incipient demand occurs when certain trends lead to the emergence of a need of which the customer is not yet aware. A product that makes it feasible to read books while sleeping would illustrate the incipient demand.
A competitor may be an existing firm or a new entrant. The new entrant may enter the market with a product developed through research and development or through acquisition. For example, Texas Instruments entered the educational toy business through research and development that led to the manufacture of their Speak and Spell product. Philip Morris entered the beer market by acquiring Miller Brewing Company.
Often an industry competes by producing different product lines. General Foods Corporation, for example, offers ground, regular instant, freeze-dried, decaffeinated, and "international" coffee to the coffee market. Product lines can be grouped into three categories: a me-too product, an improved product, or a breakthrough product. A me-too product is similar to current offerings. One of many brands currently available in the market, it offers no special advantage over competing products. An improved product is one that, while not unique, is generally superior to many existing brands. A breakthrough product is an innovation and is usually technical in nature. The digital watch and the color television set were once breakthrough products.
In the watch business, companies have traditionally competed by offering me-too products. Occasionally, a competitor comes out with an improved product, as Seiko did in the 1970s by introducing quartz watches. Quartz watches were a little fancier and supposedly more accurate than other watches. Texas
Instruments, however, entered the watch business via a breakthrough product, the digital watch.
Finally, the scope of a competing firm's activities may be limited or extensive. For example, General Mills may not worry if a regional chain of Italian eateries is established to compete against its Olive Garden chain of Italian restaurants. However, if McDonald's were to start offering Italian food, General Mills would be concerned at the entry of such a strong and seasoned competitor.
Exhibit 4-1 illustrates various sources of competition available to fulfill the liquid requirements of the human body. Let us analyze the competition here for a company that maintains an interest in this field. Currently, the thrust of the market is to satisfy existing demand. An example of a product to satisfy latent demand would be a liquid that promises weight loss; a liquid to prevent aging would be an example of a product to satisfy incipient demand.
The industries that currently offer products to quench customer thirst are the liquor, beer, wine, soft drink, milk, coffee, tea, drinking water, and fruit juice industries. A relatively new entrant is mineral and sparkling water. Looking just at the soft drink industry, assuming that this is the field that most interests our company, we see that the majority of competitors offer me-too products (e.g., regular cola, diet cola, lemonade, and other fruit-based drinks). However, caffeine-free cola has been introduced by two major competitors, Coca-Cola Company and PepsiCo. There has been a breakthrough in the form of low-calorie, caffeine-free drinks. A beverage containing a day's nutritional requirements is feasible in the future.
The companies that currently compete in the regular cola market are CocaCola, PepsiCo, Seven-Up, Dr. Pepper, and a few others. Among these, however, the first two have a major share of the cola market. Among new industry entrants, General Foods Corporation and Nestle Company are likely candidates (an assumption). The two principal competitors, Coca-Cola Company and PepsiCo, are large multinational, multibusiness firms. This is the competitive arena where our company will have to fight if it enters the soft drink business.
Was this article helpful?
To Build Your Business It Is Crucial That You Have The Correct Info And Tools And Learn How To Build A Correct Business Plan! This is one area you must pay attention to… There are many areas of a business plan that you may not know about but need to know about. For instance... you may have no idea about an executive summary.