To analyse the competitive landscape, it is valuable to break down your competitors into a number of groups that can be seen as homogeneous in the first approximation. In each group, competitors might have the same target market, comparable size and resources, and similar operational model. Competitor clustering is useful because companies in one cluster tend to have similar strengths and ways of competing. Clustering helps you understand in which group you are and identify who your direct competitors are, makes you ask whether this is where you want to remain, and how you can create a unique selling proposition for yourself.

The idea of clustering competitors in strategic groups is similar to that of grouping customers in customer segments.

• It helps create structure from apparently inextricable complexity. It simplifies the competitive landscape by structuring it. Each group will follow the same strategy to some extent.
• It improves your understanding of how your competitors are competing and where you are competing yourself. You should then focus your attention on the companies that belong to the same strategic group as you, analyse them one by one, and treat the other groups as secondary competition only.
• It can also help you prioritise between sales opportunities and focus your own resources, leaving aside opportunities where you have a lower chance of winning because a competitive group is better positioned to address them.

As always, nothing is static and competition changes over time, so you need to keep checking that the competitive groups are remaining valid over time, otherwise you will have to adapt your analysis to the new environment.

To build clusters, try any of the following dimensions:

• size, market share, growth, profit margin
• geography, target regions, global versus local presence
• target market segments, for example business versus consumer, or business customers further split in small, medium, and large, and consumers broken down in low / medium / high end, or according to their lifestyle such as “young and dynamic”, “family-oriented”, “mature and conservative”
• the breadth of competitors’ product lines, their degree of diversification or focus on a single product
• their operational model and focus in the value creation, for example R&D, product line management, manufacturing, marketing, sales channel, and service.

Regarding the operational model, you can distinguish companies according to their degree of vertical integration in R&D, production, marketing and distribution channels. Some companies tend to do everything themselves while others outsource and focus on integrating what they buy from others. Some companies focus on the marketing of products manufactured by others, and see their own competence primarily in understanding customer requirements, designing products, their packaging and user interfaces; other companies are contract manufacturers. Some companies internalise their distribution channel, others externalise it and focus on R&D and product line management, and rely on partners who are essentially a distribution channel and add value in services and logistics.

Once you have collected data on competitors, try and identify the three most meaningful parameters of analysis for grouping them, and display the results in a Microsoft Excel® chart. Typically, sales or market share or some other measure of size will be displayed graphically by bubbles of various sizes with large competitors getting large bubbles, and small competitors smaller ones. The other two dimensions, X and Y, on your chart will vary from case to case, but should help you infer recommendations for your competitive strategy. Feel free to experiment: draw multiple charts, and find the ones that show the picture best. Don’t forget to place your business on the chart as well. And don’t over analyse either.