The Sun Tzu Guide to Competitive Analysis
Outmaneuvering competition with strategy, wit, and careful planning
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On my first day as Product Manager at a Fortune 200 Industrial company, a top leader of the company presented me with an English audiobook of “The Art of War”.
The Art of War. I’d never heard of the book before—but found the title to be intriguing. It is a military treatise attributed to Sun Tzu (孙子) , a celebrated military strategist in ancient China.
Why would you ask a new PM to read a military account? I thought.
Anyway, I began to listen to the audiobook on my commutes to and from work. And as the book unraveled, I learnt that Sun Tzu’s book was less to do with military and battles, and more to do with strategies and tactics on competing and winning, —not by force, but by careful planning.
Turns out, while the book itself talks about military backdrops and references of war, the ideas in the book have been widely used in modern business. In fact for many years The Art of War has been a required reading for executives in Chinese & Japanese companies, as well as within longstanding titans of corporate America.
In the 13 or so chapters of the book, Sun Tzu lays out strategies on how to think about competition, when and where to compete and how to outmaneuver competition with Philosophy, Wit and Careful planning—without the need for actual combat.
Keeping Competition at bay
The Products that we build are our most important weaponry in this metaphorical “war” of business competition. But we must know how to use our weapons, Sun Tzu says.
While the philosophy of modern Product management —“Focus on your customers”— cannot be argued against, we must not be naïve to competitive events around us.
My personal experience here is that in Product led companies, the Product Manager is often the generator, owner and maintainer of this information. PMs are required to be experts in the competition —necessary to create and finetune their respective product strategies.
In other words, as PMs we must know who else is out there trying to build a solution to the same problem we’re trying to solve? We must anticipate, identify and define the threats competitors pose to our business success. And ultimately, we must preempt the competition from outmaneuvering us, as we work relentlessly yet covertly to outmaneuver them—with new features, business models and world class execution.
Understanding our operating environment, which competitors are a key part of helps us steer clear of nasty surprises. It helps us create better products, articulate our USPs, and participate in the marketplace in winning ways.
Competitive Analysis is an art
Competitive analysis is easier said than done. There are no guidelines on how to approach it, and that’s what makes it tricky. First off, you will never have all the information that you think you need. Competitive Analysis involves a lot of *educated* guesswork, triangulation of multiple data points from *public* competitive activity.
Analyzing competitors is detailed, patient work. It cannot be rushed. I have seen PMs scrambling to google the competition a day before a presentation is due. And while scrambling might help you build a couple of charts — it will not help you win in the marketplace.
Instead, You must keep at it, building a profile of your competitors over time, little by little. Competitive analysis never stops. We must continue to refresh the profile with the latest and greatest information as we find, uncover or stumble upon them.
Over the years, my own approach to competitive analysis and competitive response has in many ways been inspired by The Art of War. What follows is a framework that I use to keep track of competitors, anticipate and plan competitive responses as well as tactics to dig information about them.
Before you read further, I want to remind you that in the quest for competitive information, we are often walking a tightrope— there are things that we can do —and there are other things that can get you and your business into legal trouble. So I urge you to compete ethically and legally. Anything else is not worth it.
1. Understand your Competitive set
The first order of business is to know who your competitors are. This includes not just DIRECT, but also INDIRECT Competition.
Your DIRECT Competitors are Companies that offer a similar product or service in the same category as you. For instance, McDonald’s Vs. Burger King, TOYOTA Vs. NISSAN, Netflix Vs. Amazon Prime Video.
In most cases, we have a reasonable understanding of who our direct competitors are.
But then there is Indirect Competition - and this is where many strong companies have been blindsided in the past. Your Indirect competitors are companies that offer a seemingly different product —but in the same category as you.
A case in point is Netflix.
Netflix tries to actively identify and articulate their indirect competition. On the surface, Netflix competes directly with Disney+, HBO, Amazon Prime, and other video streaming services—but it has time and again recognized that its most significant threat comes from not video streaming services but from rather unusual sources that are not immediately obvious.
Even though the Gaming companies, video sharing- social media companies aren’t really into streaming/making movies, dramas, and documentaries- but much like Netflix, they are also competing to capture a larger share of customers’ attention and screen time.
The key is to know what you are up against, and before you respond to that question, to think strategically and critically about it.
As a PM doing competitive analysis — do not simply list your obvious competitors offering perfect substitutes of your product—but think hard and wide about who else is out there that is offering a product that might become a substitute —competing for a share of the same wallet, same mindshare & attention as you?
2. Profile your Competition
Once you understand your competitive landscape, the next step is to create a profile of your top competitors. Your Competitors’ Profile documents their Strategy, products, pricing, and other key competitive traits. There are a bunch of ways to get this info - here are my favorite ones.
Annual Reports—If your competitor is a publicly listed company, you can get a lot of information (revenues, market segments, financials etc.) from their investor filings and annual reports. In addition, a company’s annual reports and letters to shareholders reveal a lot about how the leadership thinks about the business. You’ll also find mention of programs that the business thinks will directly create shareholder value! They will also list their direct and indirect competitors as well as list out the major threats and opportunities that they foresee for their business. Annual reports are a goldmine of information
Follow the Leaders: Start with a search for publicly available presentations, videos, podcasts, and talks from top leaders of your competitors. Look at their website, read their blogs, and subscribe to their newsletters. Follow them on social media —and you’ll get solid insights into how the company thinks about its business.
Track deal activity in your space and see what your competitors are up to. M&A transactions can give you a very good sense of how the product/market strategy of a competitor might be evolving. This is an effective tactic for privately held competitors that don’t have a lot of information in the public domain.
Keyword Analysis : You can snoop on your competitors through search keywords that they target for their Organic Search / PPC campaigns. There are many tools in the market (e.g. BuzzSumo, SEMRush) that will let you analyze what your competitors are investing in to get page 1 results on search engines—and this will give you ideas on how to plan your own winning campaigns accordingly.
Customer feedback: Get it straight from the customers that buy your competitor products. Of course you can interview your competition’s customers in the name of market research —but you can just as easily find what customers really think on the internet —look at their Amazon reviews, subreddit posts and online communities. Use this information to make your own products better.
Google’s Patent Search —Filing a patent is expensive and typically companies only file patents when they think there is value in protecting the advantage an innovation might ushers in. Google’s patent search is a great way to dig information about any patent or invention that your competitor might have filed.
Use a 3rd party - If you don’t have the bandwidth to do any/all of the above, there are services that you can subscribe to (for a fee) that will provide you curate this information for you. I’ve personally used and like Owler that curates Sales intelligence, Competitive activities, and trends in the industries that you choose to follow. (If you are aware / have used other competitor tracking services, drop them in the comments!)
3. Understand your position in the game
Once you’ve identified your competitive set and you understand their strengths, its time to introspect & take a hard look at how you stack up against your competitive set—both from a strategic lens —as well as at a tactical level.
One of my favorite tools to visualize the competitive set and is the Mekko chart. A Mekko chart (sometimes also called Marimekko chart) is a two-dimensional stacked chart. In addition to the varying segment heights of a regular stacked chart, a Mekko chart also has varying column widths.
Here’s a sample for the Car Market with 4 competitors for simplicity. Say you are BMW. The chart below then shows how your competitors FORD, TOYOTA & MERCEDES stack up with respect to market share across various segments that you compete in.
The columns above are the different competitive segments, and column widths are proportional to how big each segment it. For instance, Hatchbacks make up 30% of the total car market —and BMW only has a 10% market share. Mercedes with a 45% market share dominates this market.
As you can see, a Mekko chart quickly tells you a lot about your competitors, market segments and how you stack up in these segments. The Mekko chart is a tool PMs can use to to ground their organization on what the competitive landscape looks like. Its helps everybody get on the same page in planning your competitive moves. It is just one tool, there are several such tools available to visualize the competitive landscape and see where you fit into at current state. Then you can plan what your future state should look like.
Needless to mention, to build this chart in the first place, you’ll need information about your competition—their revenues, competitive segments etc. But if you’ve spent the time creating a profile for your competitors, building the chart should be quite simple.
4. Insights on Competitive Pricing
When you are running a business, a lot of competitive activity and decision making revolves around pricing. Of course, you start any pricing exercise with a value-based approach— but no matter what approach you take, your pricing strategy cannot ignore is how your competitors are pricing their products in the marketplace.
Now, typically for B2C products market pricing is quite transparent. For instance, say you manufacture and sell a certain brand of smartphone—you can usually find out what your competitor is charging out there. And you can then use this competitive input to decide what price you should be charging to compete effectively. If you want to dig deeper, I wrote a pricing primer that might be helpful.
But if you are in the B2B space, there will be instances when you wouldn’t know what a competitor is charging for their product. For example, if you are a B2B equipment manufacturer, you will regularly find yourself in a “blind bid” situation where you are competing against other manufacturers who are also bidding for the same project as you. And you’ll have no idea of what their bid looks like (neither will your competitors know what your proposal looks like). Typically, the bidder with the lowest price will win.
Without competitive information, How do you then set a price for your own product? How do you compete ?
First, here’s what you cannot do ❌ . You cannot, for both ethical and legal reasons, try to “investigate” a competitor’s pricing. Typically in B2B settings, a company’s price is deemed confidential and is privy only to customers/ authorized agents. So don’t do it, as it can land you in some real legal trouble.
In theory, setting your own price in a blind bid/auction involves an appreciation of game theory principles and what dominant strategies make sense. But in practice pricing managers don’t use Nash equilibriums but rather common sense, heuristics and competitive insights to price a project and compete effectively.
For instance, you can
Price based on the differentiated value that your product offers — to do this you must understand your points of differentiation versus your competition.
Price based on your understanding of cost positions/margin expectations of competitors - For public companies, income statements will tell you their average cost of sales and gross profits —you can use these numbers to estimate the price.
Price based on historical win/loss data from previous projects - chances are that you have historical data on pricing vs. win/loss rates -use this data to guide your pricing
Price based on the lowest margins/profits that you are willing to accept: Just as competitors, your organization probably has a target gross profit % of sales—use that to estimate your pricing.
Don’t obsess over competition, but..
In the end, we must consider our competitors as rational market participants. For instance, if we launch a product or a new feature, our underlying assumption ought to be that there will likely be a rational competitive response—not that we will see an uninterrupted hockey stick growth forever.
We must also assume that just as we plan and strategize against our competitors, our competitors are at it against us too. But the idea is to not obsess over competitors, but rather anticipate and plan for it.
By all means keep your customers front and center, but for all that customer obsession don’t forget about your competitors.— Keep the latter in your rear view mirror at all times.