Competition is an integral part of running a business, and it鈥檚 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鈥檚 their marketing strategy?
While you shouldn鈥檛 let your competitors鈥� strategies dictate your own decisions, it鈥檚 important to know what they鈥檙e 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鈥檛 doing or niches they aren鈥檛 serving.
What is Competitor Analysis?
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 鈥� a good idea when first entering a market 鈥� or do a deep dive into a particular product or aspect of business.
While it鈥檚 important to analyze competitors when you first begin operating in a particular market, it鈥檚 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鈥檛 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.
How Do You Benefit from Analyzing Competitors?
A competitive analysis can cover a wide range of factors relating to the way you and other businesses operate, including:
- Pricing
- Product range
- Product features
- Shipping
- Marketing strategy
- Technology
- After-sales service
- Company culture
- Target audience
- Customer reviews
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鈥檛, 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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When Should You Perform a Competitor Analysis?
If you鈥檙e 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鈥檚 also a good idea to do it when launching a new product or making a significant strategic change. If your company isn鈥檛 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鈥檚 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鈥檚 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.
How to Analyze Competitors
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鈥檒l want to branch out a little. Take a look at similar businesses that operate in other areas 鈥� this will help you learn how others operate and identify potential future threats, should those companies decide to expand into your area.
It鈥檚 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鈥檙e a restaurant that makes Italian food, your direct competition is other Italian restaurants. These are the companies you鈥檒l 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鈥檚 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鈥檚 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 鈥淎bout Us鈥� pages, social media, news articles, and sites like Glassdoor.
Depending on what country you鈥檙e 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.
Product:
- What are they selling?
- What features do they offer?
- What quality is their product?
- What to customers like about the product? What do they dislike? (Reviews and testimonials are good tools here.)
Price
- How much do they charge?
- Are there multiple pricing options? A subscription model? What choices have they made and are their customers happy with their options?
- Do they offer regular sales or other promotions? How often? How much of a discount?
- If they sell products online, how much do they charge for shipping? Do they offer a free option, and if so, at what threshold? Do they have multiple shipping options?
- What do their pricing choices say about their target customers?
Place
- Do they sell only online, only in-store, or a mix of both?
- What region(s) do they operate in?
- Do they sell directly to their customers, or through retailers, or both?
Promotion
- What channels (print, email, online ads, etc.) do they use to reach customers?
- Do they use social media? What鈥檚 their strategy (type, frequency, and style of content)? Do they have easy-to-find links to their social media on their site? How good is their engagement?
- Do they produce free content such as blogs, whitepapers, or webinars?
- What features or services do they emphasize in their marketing? What are their selling points?
- How do they frame their company? What does this say about their target customers?
Research Sales Tactics
This overlaps with some of the questions outlined above, but it鈥檚 worth diving into a little deeper. Take a look what your competitors鈥� 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鈥檙e in a market with a long sales funnel where leads and customer relationships are important, evaluate how your competitors鈥� 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鈥檛 have that data, consider asking your sales team to collect it during customer interactions.
Evaluate Strengths and Weaknesses
Once you鈥檝e gathered all this data, it鈥檚 time to make sense of it. Put together a chart or spreadsheet and rank yourself and your competitors on the various qualities you鈥檝e researched. Is there something most of your competitors are doing that you aren鈥檛? Is there an area where companies in your industry frequently underperform? A niche that isn鈥檛 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鈥檚 something your competitors don鈥檛 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鈥檙e unable to offer. Maybe you can鈥檛 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鈥檛 very popular right now, but are offering things that you aren鈥檛. 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鈥檒l 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.
