Possessing a thorough knowledge of your competition is the key to staying ahead of your competitors, and a competitive analysis is exactly how you'll manage and maintain your competitive position.
A competitive analysis is a way to identify competitors, and understand competitor's strengths and weaknesses in relation to yours. It helps you gauge how to curb competitors and refine your strategy.
Conducting a competitive analysis is important because you’ll build:
- An understanding of how your existing and potential customers rate the competition.
- A mechanism to develop effective competitive strategies in your target market.
- An idea of what gives your company an advantage over its competitors.
- A good idea of what your customers are in need of.
- Strategies for how to expand into a new market.
Before you can start your analysis, or begin collecting information, you must first determine who your competitors are.
Determining your competitors
To evaluate whether a business is your competitor, start by asking:
- What is the range of products and services they offer? Firms offering dissimilar or substitute products to yours are considered indirect competitors. For example, the manufacturer of eyeglasses who competes indirectly with contact lens manufacturers.
- Are their products or services aimed at satisfying similar target markets? A company's target market is a good indication of their ability to be considered your competitor or not. It's possible that they could offer the same product or service, but target a different market segment. In that case, they may not be a competitor.
- Do they operate in the same geographic area? Any business marketing a product similar to, or as a substitute for, your own product in the same geographic area is a direct competitor.
Do I Need to Analyze All of My Competitors?
There are several markets where it is relatively easy to name every competitor, so it’s recommended you do so if possible.
If you are selling in a market with dozens of competitors, it is unrealistic to collect and maintain information on each one. In this case, it would be inefficient to analyze every single one of your competitors. Save yourself time by using the 80/20 rule.
Hiring a marketing research firm isn’t necessary when most of your competitor’s information is readily available.
Before you begin seeking out your sources, keep in mind the information you are looking for so you can allocate your time as effectively as possible. To begin, ask yourself the following questions regarding your competitors:
- What is the full range of products and services they offer?
- Are their products or services aimed at satisfying similar target markets?
- Are my competitors profitable, expanding, or scaling down?
- What are their marketing and promotional strategies?
- What are their positive and negative attributes in the eyes of customers?
- How do they rate in terms of price, quality, sales, image/style, value, name recognition, market share, customer service, location, convenience and more.
Next, ask yourself the following questions about your company in comparison to your competitors:
- Do I have a competitive advantage; if so, what is it?
- How do current customers rate my business compared to the competition? (If you need help writing effective customer survey questions, check out this blog)
- How can I distinguish my company from my competitors?
Where do I find information?
Secondary sources are information developed for a specific purpose, but later made available for public access and alternative uses—like sizing up your competition! I elaborate on these resources in the video above, but a few examples of great secondary sources are:
- Advertising. Tells you a competitor’s price, product information, and provides an indication of your competitor’s entire promotional program and budget.
- Reference Books and Databases can be accessed for free at most public and college libraries that have business resources. Some examples are:
- Government sources such as the Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations, County Business Patterns, the Annual Survey of Manufacturers, and the Economic Censuses.
- State agency publications such as industry directories, and statistics on local industry, which can be found on the State and Local Government on the Net website.
- Commercial data sources such as the Dun & Bradstreet Million Dollar Database.
- Your Employees working in other areas of the company that become exposed to competitive information. Your sales staff is a key player for this kind of data.
- Talking To Your Competitors. You can garner a great deal of information through a simple, friendly conversation. People like to talk about themselves and share their success stories and concerns with business associates.
Once you know who your competitors are, what you need to know about them, and where to find that information, it’s time to conduct your analysis.
Conducting a competitive analysis is
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Identifying your competitor’s objectives and strategies will provide you with viable strategy ideas to try on your target market.
First, ask the following questions to help you identify your competitor’s objects. Are your competitors trying to:
- Maintain or increase market share?
- Maximize short-term or long-term profits?
- Introduce technologically improved products into your market?
- Establish themselves as the market leaders?
- Develop new markets for existing products?
Once you have identified what your competitors are trying to achieve, you will need to determine what type of strategy they have employed so you can eventually counteract with a strategy of your own. Some possible strategies are:
- Reducing prices.
- Advertising in new publications, or advertising more frequently.
- Buying out a competitor to increase market share and customer base.
- Improving a product with a new innovation.
Once you’ve gathered all your competitor’s data, it’s analysis time.
Evaluate Their Product Features and Benefits
Start by making a list of product features and benefits in order of importance, and prepare a table to show whether or not each of your competitors fulfill them. Indicate with a check mark which of your competitors has which features and benefits. Features are fairly straightforward, either a product has it or it doesn’t. Benefits, on the other hand, are not as simple and should only be recorded based on customer feedback.
Now, use this table to evaluate your competition’s product or service. Ask yourself, How does your product compare to your closest competitors? What features and benefits are unique to your product? To theirs? The more unique features and benefits your product has, the stronger your market position will be.
Determine Your Competitor’s Market Share
The most widely used measure of sales performance is market share. A competitor may not provide the best product or service; however, if they generate a significant amount of sales to the market, they may:
- Define the standards for a particular product or service.
- Influence the popular perception of the product or service.
- Devote resources to maintaining their market share.
To determine your company’s market share on a percentage basis, the following formula should be used:
Current Market Share = Company Sales / Industry Sales
You should then compute each of your competitors’ market shares.
Other Factors to Consider
Customer preference is only part of the analysis. Consider other important factors such as:
- Price — It's best to look for trends in pricing rather than momentary rises and falls.
- Financial resources — Are they withstanding financial setbacks? How are they funding new product development and improvement?
- Operational efficiencies — Are they able to save time and cost with clever production and delivery techniques?
- Product line breadth — How easily can they increase revenues by selling related products?
- Strategic partnerships — What kinds of relationships do they have with other companies?
- Company morale/personnel — What is the motivation, commitment, and productivity level of the employees?
By now it should be fairly clear to you if you are a market leader, one of several followers, or new to your marketplace. Once you have identified and analyzed your competition, and understand your competitive position, you are ready to do the following:
- Identify and discuss key areas of competitive advantage and disadvantage. Review the competitive environment for your product or service. Comment on both similar and substitute products or services.
- Summarize the major problems and opportunities facing your firm which may require action. Issues that should be considered include types of market penetration, distribution coverage, product line needs, price revisions, and/or cost reductions.
- Integrate your analysis of the competition with demographic analysis of your market to develop and implement a marketing strategy that will strengthen your market position.
But remember, no matter what your market position may be, implementing a strong online lead generation strategy will benefit you and your company greatly. To get started with lead generation today, download your free comprehensive Introduction to Lead Generation Guide today.