Identifying competitors

It would seem a simple task for a company to identify its competitors. PepsiCo knows that Coca-Cola’s Dasani is the major bottled water competitor for its Aquafina brand; Citigroup knows that bank of America is a major banking competitor; and Pet knows that its major online competitor for pet food and supplies is However, the range of a company’s actual and potential competitors can be much broader. A company is more likely to be hurt by emerging competitors or new technologies than by current competitors. This certainly has been true for Toys “R” Us and other major retailers.

Toys “R” Us and KB toys

Pricing pressure from discounters Wal-Mart, Target, and even electronics vendors such as Best buy and Circuit City has pummeled the toy chains and sent some of them into bankruptcy. During the 2004 holiday season, Walmart made its most aggressive move yet into the toy business, drastically reducing prices and undercutting Toys “R” Us and KB Toys by 20%. At Wal-Mart, one of the season’s hottest toys, Hokey-Pokey Elmo, sold for $19.46 whereas at KB Toys it cost $24.99. With their bare bones prices, the discounters have higher sales, more locations, and the flexibility, if necessary, to break even or even lose money in areas such as toys while falling back on other product revenue. In response, some chains, such as venerable FAO Schwartz, have filed for bankruptcy, while others, such as Toys “R” Us, are contracting. The company closed 182 freestanding Kids “R” Us stores as well as its Imaginarium chain. KB Toys may try specializing in order to survive and become a niche provider.’

Many businesses failed to look to the Internet for their most formidable competitors. Web sites that offer jobs, real estates listings, and automobiles online threaten newspapers, which derive a huge portion of their revenue from classified ads. The businesses with the most to fear from Internet technology are the world’s middlemen. A few years back, Barnes & Noble and Borders bookstore chains were competing to see who could build the most mega stores, where book browsers could sink into comfortable couches and sip cappuccino. While they were deciding which products to stock, Jeffrey Bezos was building an online empire called Bezos’s cyber-bookstore had the advantage of offering an almost unlimited selection of books without the expense of stocking inventory. Now both Barnes & Noble and Borders are playing catch-up in building their own online stores “Competitor myopia” — a focus on current competitors rather than latent ones — has rendered some businesses extinct.

Encyclopedia Britannica

In 1996, 230-year-old Encyclopedia Britannica dismissed its entire home sales force after the arrival of its $5-per-month subscription Internet site made the idea of owning a 32-volume set of books for $1,250 less appealing to parents Britannica decided to create an online site after realizing that computer-savvy kids most often sought information online or on CD-ROMs such as Microsoft’s Encarta, which sold for $50. What really smarts is that Britannica had the opportunity to partner with Microsoft is providing content for Encarta but refused. Britannica now sells print sets and offers online access to premium subscribers on its Web sites.