CHAPTER 6

Competition, Competitors, Principles, Tools, and Techniques in Evaluating Business Organizations

LEARNING OBJECTIVES
At the end of this chapter, the learners will be able to:
1. discuss how competition happens;
2. explain the meaning of competitors;
3. identify and explain the different principles, tools, and techniques in creating a business; and differentiate SWOT
analysis and Porter's Five Forces analysis.

Competition

 Competition is a rivalry in which every seller tries to get what other sellers are seeking at the same time like
sales, profit, and market share by offering the best practicable combination of price, quality, and service.

Competitor

• is any person or entity which is a rival of another. It is a company in the same industry or a similar industry which
offers a similar product or service.

Advantages of Competition

According to Belonwu (2016), having competition is healthy for the following reasons:

1. Competition makes your customer service better. When you are on the treadmill of a business boom, there
simply is not enough time in a day to stop and really evaluate every single customer.

2. Competition fosters innovation. Innovation is important to you and your company. When your business is
number one or the only one, innovation tends to be ignored.

3. Competition helps identify your strengths and weaknesses. You may not always know what your strengths and
weaknesses are until your competition points them out. Competition helps narrow your focus a little and
concentrate on what you are really good at that your competition is not.

4. Competition is good for consumers. Competition is good not only for your business but also gets their for
consumers.

5. Competition reminds you to focus on your key customers. They are the reason why there is also come up with
to serve them better. more cash inflow.

6. Competition provides the opportunity to serve. When you have various customers, you have a huge task to
always serve. Competition makes it mandatory to keep serving and seek new ways to serve your customers
better.

7. Competition makes way for creative thinking. Because you have a mandate to always give your clients a run for
their money, competition allows you to put on your thinking cap for better ways to add value. Creative thinking
forms the bedrock of any success-minded brand.

8. Competition helps identify potential threats to your business. You are able to learn from other competitors
what works and what does not. By learning this, you will be able to what plans and strategies or even products
would be detrimental to your business.

9. Competition helps identify your strengths and weaknesses. You are able to strengths and weaknesses to help
you become better and drive you harder to achieve more.
 10. Competition stops complacency. Competition automatically pushes you out of your comfort e quest to serve
better. Leaving your comfort zone also helps you to strive to beat zone because of the records of your
competitors.

Customers

• Attracting customers is the primary goal of most public-facing businesses. It is the costumer who creates
demand for good and services. A customer is an individual or business that purchases the goods or services
produced by a creates demand for goods and services.

• Businesses often compete through advertisements prices to attract an ever larger customer base. or lowered
expected needs

• Businesses often follow the adage "the customer is always right" because happy customers are to continue
buying goods and services from companies that meet their needs. Many company closely monitor the
relationships they have with customers, often asking for feedback to learn whether new products should be
created or adjustments should be made to what is currently offered.

Customers and Consumers

CUSTOMERS are defined by their purchase of goods, or their contracting for services, while the CONSUMERS is the end
user. As the term is commonly used, a customer is the end consumer of a product. This distinguishes true customers
from resellers and vendors, who usually make purchases to sell later.

Importance of Knowing the Customers

• Customers are also likely to make purchases with their own money, or the money given to them by others who
know them personally. Unlike a purchasing agent, who may be buying goods wholesale for use in a commercial
or industrial setting, true customers are individuals who almost always buy products with cash or credit that
belongs to them, rather than to a corporate entity employing them.

• Customers are often grouped according to their demographics. Age, race, sex, ethnicity, income level and
geographic location all go into a customer's demographic profile. Knowing these information about the people
who shop with a business helps build up a picture of the "ideal customer," or "customer persona”.

Suppliers and Substitutes Suppliers

• SUPPLIERS are the entities who supply goods and services.

• Suppliers are essential to almost every business. Without raw materials to make what you sell or manufacturers
to provide what you resell, you will have a tough time growing.

• On the other hand, substitutes are products that can be used instead of another.

• Substitute goods are goods which, as a result of changed conditions, may replace each other in use. For
example, when the price of gasoline increases, there will be a demand for liquefied petroleum gas (LPG) because
it costs less.
Principles, Tools, and Techniques in Evaluating Business Organizations

SWOT Analysis

SWOT is the acronym for Strengths, Weaknesses, Opportunities, and Threats. It is a tool for business analysis which
every organization needs to get through greater heights of success.
Strength, Weaknesses, Opportunities, and Threats

According to Daft (2005), the Strengths, Weaknesses, Opportunities and Threats (SWOT) are defined as follows:

1. Strengths-They are the positive internal characteristics that the organization can exploit to achieve its strategic
performance goals. These are the qualities that help the firm achieve its objectives.

2. Weaknesses-These are the internal characteristics that might inhibit the organization's performance. Weaknesses are
the very qualities that the firm restrict to reach their objectives and potential to the fullest.

3. Opportunities- These are the characteristics of the external environment that have the potential to help the
organization achieve or exceed its strategic goals. They are the avenues for improvement and success which are present
in the business environment.

4. Threats-These are the characteristics of the external environment that may prevent the organization from achieving
its strategic goals.

Kraft SWOT Analysis

• Kraft has some of the most recognizable brand names in the grocery store, but like other businesses, the giant
food company has been facing some difficult challenges in recent years. To get things back on track, managers
are evaluating the company by looking at strengths, weaknesses, opportunities, and threats (SWOT).

• The greatest strengths of Kraft are its powerful brands, its positive reputation, its track record as an innovator,
and a well-funded R&D budget.

• The greatest strengths of Kraft are its powerful brands, its positive reputation, its track record as an innovator,
and a well-funded R&D budget.
 • Kraft's managers recognize opportunities in the environment. Trends show that many people are looking for
more snack foods and comfort foods, which presents a golden opportunity for Kraft, whose name for many
people is almost synonymous with comfort food

• What does SWOT analysis suggest for Kraft's future strategy? Kraft managers will try to capitalize on the
company's strengths by investing in research to develop much healthier snack and pre- packed lunch foods, such
as lower fat foods. To bolster its brand, Kraft must pump an additional budget into its multi-

Steps in Creating a SWOT Analysis

According to Smart Draw (2017), following are the steps in doing a SWOT analysis:

Step 1. Determine the objective. Decide on a business organization, key project, or strategy to analyze and place it at the
top of the page and then divide it into four smaller squares.

Step 2. Create a grid. Draw a large square

Step 3. Label each box. Write the word "Strengths" inside the top left box, "Weaknesses" inside the top right box,
"Opportunities" within the bottom left box, and "Threats" inside the bottom right box. These are the titles, so they
should distinguish from the rest of the text using either color or font size.

Step 4. Add strengths, weaknesses, opportunities, and threats. Add factors that affect the business organization to the
applicable boxes. Components of a SWOT analysis may be qualitative and anecdotal as well as quantitative and empirical
in nature. Factors are typically listed in a bullet form.

Step 5. Draw conclusions. Analyze the finished SWOT diagram. Be sure to note if the positive outcomes outweigh the
negative. If they do, it may be a good decision to carry out the objective. If they do not, adjustments may need to be
made, or else the plan should simply be abandoned.

Porter's Five Forces of Competitive Analysis

• Porter's five forces of competitive analysis is another tool that uses five industry forces to determine the
intensity of competition in an industry and its profitability level.

• Michael E. Porter from Harvard University studied a number of business organizations and proposed that
business-level strategies are a result of five competitive forces in the company's environment.

• The forces determine the industry structure and the level of competition in the industry

The Five Competitive Forces

According to Daft (2005), the five competitive forces of competitive analysis are the following:

5-Capital requirements and economies of scale are examples of two

1. Potential new entrants - Capital requirements and economies of scale are examples of two potential barriers to entry
that can keep out new competitors.

Threat of new entrants is high when

a. low amount of capital is required to enter a market;

b. existing companies can do little to retaliate;

c. existing firms do not possess patents;

d. there is no government regulation; and she hold on by h

e. customer switching are low.

2. Bargaining power of buyers - Informed customers become empowered customers.

Buyers exert strong bargaining power when:

a. buying in large quantities or control many access points to the final customer;

b. only few buyers exist;

c. switching costs to other suppliers are low;

d. there are many substitutes; and

e. buyers are price sensitive.

3. Bargaining power of suppliers – The concentration of suppliers and the availability of substitute suppliers are
significant factors in determining supplier power.

a. There are few suppliers but many buyers.

b. Few substitutes of raw materials exist.

C. Suppliers hold scarce resources.

d. Cost of switching raw materials is especially high.

4. Threats of substitute products The power of alternatives and substitutes for a company's product may be affected by
changes in cost or in trends such as increased health consciousness that will deflect buyer loyalty.

5. Rivalry among competitors - The rivalry among competitors is influenced by the preceding four forces, as well as by
cost and product differentiation.

Rivalry among competitors is intense when

a. there are many competitors,

b. exit barriers are high,

c. industry growth is slow or negative,

Porter's Five Forces Model

The Porter's five forces model determines industry structure and the level of competition in that industry. The stronger
the competitive forces in the industry, the less profitable it is.

Steps used in Porter's Five Forces Framework

Following are the steps used in applying the Porter's five forces framework analysis (Jur Evicius 2013).

Step 1. Gather the information on each of the five forces. What managers should do during this step is to gather
information about their industry and to check it against each of the factors.

Step 2. Analyze the results and display them on a diagram.

Step 3. Formulate strategies based on the conclusions.