Each competitor has a mix of objectives. The company wants to know the relative importance that a competitor places on current profitability, market share growth, cash flow, technological leadership, service leadership, and other goals. Knowing a competitor’s mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to different competitive actions. For example, a company that pursues low-cost leadership will react much more strongly to a competitor’s cost-reducing manufacturing breakthrough than to the same competitor’s increase in advertising.

A company also must monitor its competitors’ objectives for various segments. If the company finds that a competitor has discovered a new segment, this might be an opportunity. If it finds that competitors plan new moves into segments now served by the company, it will be forewarned and, hopefully, forearmed.

The more that one firm’s strategy resembles another firm’s strategy, the more the two firms compete. In most industries, the competitors can be sorted into groups that pursue different strategies. A strategic group is a group of firms in an industry following the same or a similar strategy in a given target market. For example, in the auto industry, Ford and Toyota belong to the same strategic group. Each produces a full line of low- to medium-price mainstream vehicles supported by great warranties and broad dealership networks. BMW, Audi, and Mercedes belong to a different strategic group that focuses more on luxury performance. In contrast, Ferrari, Lamborghini, and McLaren produce narrower lines of very high-performance, premium-priced sports cars through a highly exclusive distribution and support network.

Some important insights emerge from identifying strategic groups. For example, if a company enters a strategic group, the members of that group become its key competitors. Thus, if the company enters a group against Ford and Toyota, it can succeed only if it develops strategic advantages over these two companies. Tesla is doing this by introducing more mainstream all-electric cars such as the Tesla Model 3. Tesla can succeed only if its models outperform and outclass the hybrid and electric models of the major automakers.

Although competition is most intense within a strategic group, there is also rivalry among groups. First, some strategic groups may appeal to overlapping customer segments. For example, no matter what their strategy, most automobile manufacturers offer high-performance vehicle models. Second, customers may not see much difference in the offerings of different groups; they may see little difference in quality between a high-end Ford and a Mercedes. Finally, members of one strategic group might expand into new strategy segments. Thus, Toyota’s Lexus division offered a bespoke Lexus LFA “Supercar” model that rivals a Ferrari or Lamborghini, with a starting price of $375,000. And Ford returns to that segment with a limited-production, ultra-high performance, $400,000 Ford GT road car developed alongside a successful racing program to showcase its innovation and technological prowess.3

The company needs to look at all the dimensions that identify strategic groups within the industry. It must understand how each competitor delivers value to its customers. It needs to know each competitor’s product quality, features, and mix; customer services; pricing policy; distribution coverage; sales force strategy; and advertising, sales promotion, and online and social media programs. And it must study the details of each competitor’s research and development (R&D), manufacturing, purchasing, financial, and other strategies.

Marketers need to carefully assess each competitor’s strengths and weaknesses to answer a critical question: What can our competitors do? As a first step, companies can gather data on each competitor’s goals, strategies, and performance over the past few years. Admittedly, some of this information will be hard to obtain. For example, business-to-business (B-to-B) marketers find it hard to estimate competitors’ market shares because they do not have the same syndicated data services that are available to consumer packaged-goods companies.

Companies normally learn about their competitors’ strengths and weaknesses through secondary data, personal experience, and word of mouth. They can also conduct primary marketing research with customers, suppliers, and dealers. They can check competitors’ online and social media sites. Or they can try benchmarking themselves against other firms, comparing the company’s products and processes to those of competitors or leading firms in other industries to identify best practices and find ways to improve quality and performance. Benchmarking is a powerful tool for increasing a company’s competitiveness.

Next, the company wants to know: What will our competitors do? A competitor’s objectives, strategies, and strengths and weaknesses go a long way toward explaining its likely actions. They also suggest its likely reactions to company moves, such as price cuts, promotion increases, or new product introductions. In addition, each competitor has a certain philosophy of doing business, a certain internal culture and guiding beliefs. Marketing managers need a deep understanding of a competitor’s mentality if they want to anticipate how that competitor will act or react.

Each competitor reacts differently. Some do not react quickly or strongly to a competitor’s move. They may feel their customers are loyal, they may be slow in noticing the move, or they may lack the funds to react. Some competitors react only to certain types of moves and not to others. Other competitors react swiftly and strongly to any action. Thus, P&G does not allow a competitor’s new product to come easily into the market. Many firms avoid direct competition with P&G and look for easier prey, knowing that P&G will react fiercely if it is challenged. Knowing how major competitors react gives the company clues on how best to attack competitors or how best to defend its current positions.

In some industries, competitors live in relative harmony; in others, competitors are more openly combative. For example, competitors in the U.S. wireless industry have been at each other’s throats for years. Verizon Wireless, AT&T, and T-Mobile have aggressively attacked each other in comparative ads:

Verizon started the most recent round of attacks with TV ads using colorful balls to illustrate its supposed network dominance over specifically named competitors. AT&T, T-Mobile, and Sprint responded with vigorous counterattacks debunking Verizon’s claims. For example, T-Mobile launched a #BallBusterChallenge campaign inviting consumers and media to make side-by-side comparisons of T-Mobile’s full network against Verizon’s, claiming that its LTE network is not just the nation’s fastest, it’s also the nation’s fastest growing. The challenge traveled across the country, urging Verizon users to match T-Mobile’s network head-on, testing data speeds, texting, and calls. If a customer’s Verizon network beat out T-Mobile’s two out of three times, the customer received $100. When customers lost, they posed for a photo with sign such as “T-Mobile’s network was just as good as Verizon’s #BallBusterChallenge” or “Verizon’s network just got spanked by T-Mobile #BallBusterChallenge.” At the same time, T-Mobile ran its own “balls” ad on the Super Bowl correcting Verizon’s dated facts, complete with a #Ballogize hashtag.4

In some cases, such competitive exchanges can provide useful information to consumers and advantages for brands. In other cases, they can reflect unfavorably on the entire industry.

A company can focus on one of several classes of competitors. Most companies prefer to compete against weak competitors. This requires fewer resources and less time. But in the process, the firm may gain little. You could argue that a firm also should compete with strong competitors to sharpen its abilities. And sometimes, a company can’t avoid its largest competitors, as in the case of T-Mobile, Verizon, and AT&T. But even strong competitors have some weaknesses, and succeeding against them often provides greater returns.

A useful tool for assessing competitor strengths and weaknesses is customer value analysis. The aim of customer value analysis is to determine the benefits that target customers value and how customers rate the relative value of various competitors’ offers. In conducting a customer value analysis, the company first identifies the major attributes that customers value and the importance customers place on these attributes. Next, it assesses its performance against competitors on those valued attributes.

The key to gaining competitive advantage is to examine how a company’s offer compares to that of its major competitors in each customer segment. The company wants to find the place in the market where it meets customers’ needs in a way rivals can’t. If the company’s offer delivers greater value than the competitor’s offer on important attributes, it can charge a higher price and earn higher profits, or it can charge the same price and gain more market share. But if the company is seen as performing at a lower level than its major competitors on some important attributes, it must invest in strengthening those attributes or finding other important attributes where it can build a lead.

A company really needs and benefits from competitors. The existence of competitors results in several strategic benefits. Competitors may share the costs of market and product development and help legitimize new technologies. They may serve less-attractive segments or lead to more product differentiation. Finally, competitors may help increase total demand.

For example, you might think that Apple’s introduction of its iPad tablet would have spelled trouble for Amazon’s smaller, dowdier Kindle e-reader, which had been on the market for three years prior to the iPad’s debut. Many analysts thought that Apple had created the “Kindle killer.” However, as it turns out, the competing iPad created a stunning surge in tablet demand that benefited both companies. Kindle e-reader sales increased sharply with the iPad introduction, and new tablet demand spurred Amazon to introduce its own full line of Kindle tablets. As an added bonus, the surge in iPad usage increased Amazon’s sales of e-books and other digital content, which can be read on the iPad ­using a free Kindle for iPad app. Burgeoning tablet demand following the iPad introduction also opened the market to a host of new competitors, such as Samsung, Google, and Microsoft.

However, a company may not view all its competitors as beneficial. An industry often contains good competitors and bad competitors. Good competitors play by the rules of the industry. Bad competitors, in contrast, break the rules. They try to buy share rather than earn it, take large risks, and play by their own rules.

For example, the nation’s traditional newspapers face a lot of bad competitors these days. Digital services that overlap with traditional newspaper content are bad competitors because they offer for free real-time content that subscription-based newspapers printed once a day can’t match. An example is the Huffington Post, the Pulitzer Prize–winning online newspaper started in 2005 by Arianna Huffington as an outlet for liberal commentary. The publication has since expanded and is now owned by AOL, which is in turn owned by Verizon. The site offers news, blogs, and original content and covers politics, business, entertainment, technology, popular media, lifestyle, culture, comedy, healthy living, women’s interest, and local news. The ad-supported site is free to users versus the subscription rates charged by traditional newspapers, and that’s about as bad as a competitor can get. HuffingtonPost.com is currently the 38th most visited site in the United States.5 Such digital competitors have helped to drive many traditional newspapers into bankruptcy in recent years.

Rather than competing head-to-head with established competitors, many companies seek out unoccupied positions in uncontested market spaces. They try to create products and services for which there are no direct competitors. Called a “blue-ocean strategy,” the goal is to make competition irrelevant.6

Companies have long engaged in head-to-head competition in search of profitable growth. They have fought for competitive advantage, battled over market share, and struggled for differentiation. Yet in today’s overcrowded industries, competing head-on results in nothing but a bloody “red ocean” of rivals fighting over a shrinking profit pool. In their book Blue Ocean Strategy, two strategy professors contend that although most companies compete within such red oceans, the strategy isn’t likely to create profitable growth in the future. Tomorrow’s leading companies will succeed not by battling competitors but by creating “blue oceans” of uncontested market space. Such strategic moves—termed value ­innovation—create powerful leaps in value for both the firm and its buyers, creating all-new demand and rendering rivals obsolete. By creating and capturing blue oceans, companies can largely take rivals out of the picture.

Apple has long practiced this strategy, introducing product firsts such as the iPod, iTunes, iPhone, App Store, and iPad that created whole new categories. Similarly, Redbox reinvented the DVD-rental category via kiosks in convenient locations. And rather than competing against traditional coffee maker brands such as Hamilton Beach and Mr. Coffee that brew coffee by the pot, Keurig reinvented the process with innovative cup-at-a-time, pod-based coffee makers. As a result, Keurig has achieved annual sales of coffee makers and pods exceeding $4.5 billion and captures 60 percent of the U.S. single-serve market.7

Another example is Cirque du Soleil, which reinvented the circus as a higher form of modern entertainment targeting adults rather than children. At a time when the circus industry was declining, Cirque du Soleil innovated by eliminating high-cost and controversial elements such as animal acts and bearded ladies, instead focusing on artistic theatrical experiences. Cirque du Soleil did not compete with then–market leader Ringling Bros. and Barnum & Bailey; it was altogether different from anything that preceded it. Instead, it created an uncontested new market space that made existing competitors irrelevant. The results have been spectacular. Thanks to its blue-ocean strategy, Cirque du Soleil is now the undisputed leader in the redefined circus industry. In only its first 20 years, the company achieved more revenues than Ringling Brothers and Barnum & Bailey achieved in its first 100 years. Recently, however, as traditional circuses have updated their acts and smaller Cirque-like rivals have emerged, Cirque du Soleil’s blue ocean “is now full of sharks,” says a company executive. Cirque du Soleil must continue to find innovative new ways to separate itself from competitors in bringing value to customers.8