Competition is an integral part of running a business, and it’s important to know what other companies in your field are doing. How does their pricing compare to yours? What does their product range look like? What services do they offer? What’s their marketing strategy?
While you shouldn’t let your competitors’ strategies dictate your own decisions, it’s important to know what they’re doing and how that could impact your own business. If your competitors consistently have better prices or more value-added features than you, it will be challenging to attract customers. Identifying disparities between you and your competitors can help you understand what your weaknesses are and how you can improve sales. It also allows you to identify strengths and opportunities, if you discover practices your competitors aren’t doing or niches they aren’t serving.
A competitor analysis involves identifying the competitors operating in your industry and researching their strategies and performance. By documenting and analyzing this data, you can evaluate both their strengths and weaknesses and your own. You can analyze competitors at a high level — a good idea when first entering a market — or do a deep dive into a particular product or aspect of business.
While it’s important to analyze competitors when you first begin operating in a particular market, it’s also very useful to conduct a new analysis at least once a year. Companies enter and leave markets, add new products, and change their strategies over time. If you aren’t periodically checking on your competitors, you could miss changes that put you at a disadvantage. Conducting regular analyses helps you keep on top of your competitors and adapt to changes in a timely manner.
A competitive analysis can cover a wide range of factors relating to the way you and other businesses operate, including:
Any one of these factors could be something that a competitor does better than you, or an opportunity for you to outperform your competitor. Studying these things lets you determine reasons why you might be falling behind in your industry, as well what makes your offerings unique. It can reveal a market segment your competitors are neglecting or new strategies that you could adopt. It can also identify potential threats: if there are new businesses in your industry that have a small market share but are offering things you don’t, they may spell trouble for you down the line. This gives you the opportunity to learn about those threats before they start impacting your business, and plan for ways to keep ahead in the face of new challenges.
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If you’re in a fast-moving category such as e-commerce where you have a large number of competitors, you may want to analyze your competitors as often as once every quarter. It’s also a good idea to do it when launching a new product or making a significant strategic change. If your company isn’t growing as quickly as you want or your customers are choosing your competitors over you, an analysis can help you identify where the problem is and how to improve your business.
Because there are so many different data points that can be collected and compared, it’s important to determine the scope that you want your analysis to cover. A broad scope is a good idea when you are entering a new market or when it’s been a long time since you last reviewed your competition. A narrow scope, on the other hand, can be a useful tool when you want to examine one particular product in depth, or one specific aspect of doing business, such as social media marketing or after-sales service.
Identify Your Competition
The first step is to determine who your competitors are and decide which ones to focus your efforts on. Depending on your industry and the region in which you operate, there may be more competitors than you can feasibly analyze. In that case, focus primarily on those businesses that have a similar market share to you, but also select a few of the top performers.
If your market is small and there are few direct competitors in your area, you’ll want to branch out a little. Take a look at similar businesses that operate in other areas — this will help you learn how others operate and identify potential future threats, should those companies decide to expand into your area.
It’s also worth examining direct, indirect, and substitute competitors, as they all fill different roles in the market. Direct competitors are those that offer the same products or services as you: if you’re a restaurant that makes Italian food, your direct competition is other Italian restaurants. These are the companies you’ll want to devote most of your focus to.
Indirect competitors sell products that are similar to yours and target a similar audience. In the restaurant example, a Japanese restaurant would be an indirect competitor. Your customers cannot get an Italian meal from an indirect competitor, but they can still sit down for a meal there. These competitors are less relevant to consider when evaluating factors such as branding, but are still useful to examine, especially if there’s a chance that the nearby Japanese restaurant might decide to start putting Italian food on its menu.
A substitute competitor sells a completely different product to yours but satisfies a similar need. Substitutes for a restaurant meal include things like meal kits or frozen meals. While these companies are less important to your competitor analysis, it’s worth looking at what they offer and why customers might choose them over you. By understanding what value customers get from a substitute, you may discover ways that you can entice them to your business instead.
Gather Basic Company Information
Look up information like how long your competitors have been in business, how many people they employ, how much money they make, and where they operate. This can be easy to find for large, public companies but more challenging for smaller businesses. Take a look at sources such as “About Us” pages, social media, news articles, and sites like Glassdoor.
Depending on what country you’re based in, you may also be able to find information from government sources, such as statistics and company registrations. This can show you data such as average company size, revenue, and employee wages for your field.
Look at the Marketing Mix
The marketing mix is also known as the 4 Ps: product, price, place, and promotion. Look at each of your competitors and examine how they handle these elements.
This overlaps with some of the questions outlined above, but it’s worth diving into a little deeper. Take a look what your competitors’ sales process looks like. Do they sell primarily to consumers, or to wholesalers and retailers? How big is their sales team? Do they have bulk rates or other specialized deals?
If you’re in a market with a long sales funnel where leads and customer relationships are important, evaluate how your competitors’ tactics compare to yours. If possible, reach out to those of your own customers who have considered buying from a competitor or who have made the switch, and ask them what factors made them consider that company over your own. If you don’t have that data, consider asking your sales team to collect it during customer interactions.
Once you’ve gathered all this data, it’s time to make sense of it. Put together a chart or spreadsheet and rank yourself and your competitors on the various qualities you’ve researched. Is there something most of your competitors are doing that you aren’t? Is there an area where companies in your industry frequently underperform? A niche that isn’t being filled? Do your competitors often focus on one quality to the detriment of others, or are they more well-rounded?
Look at your strengths and weaknesses. What do you do best, and are you advertising it? Highlighting your best features in your marketing can draw in more customers, especially if it’s something your competitors don’t do as well. Try to shore up your weaknesses, or look for ways that you can add value in order to make up for things that you’re unable to offer. Maybe you can’t match your biggest competitors in terms of discounts or free shipping, but you can provide personalized service or an attractive loyalty program.
Keep an eye out for upcoming threats as well. Maybe some of your competitors aren’t very popular right now, but are offering things that you aren’t. Watch these companies and consider what you can do to stand out if they start growing their market share. Take note of businesses in other regions that could expand into yours. Find out where your competitors are stumbling so you can avoid similar hurdles.
Armed with this knowledge, you’ll be able to make proactive strategic choices in order to stay competitive in the market, rather than reacting too late and losing market share to other companies. Analyze your competitors, learn from what they do best, keep an eye on changing market forces, and make sure your customers know what you can do for them.