A competitive analysis is a critical part of your company's marketing plan. With this evaluation, you can establish what makes your product or service unique--and therefore what attributes you play up in order to attract your target market.
Competitor analysis also referred to as competitive analysis, is the process of identifying competitors in your industry and researching their different marketing strategies. You can use this information as a point of comparison to identify your company’s strengths and weaknesses relative to each competitor.
You can do a competitor analysis at a high level, or you can dive into one specific aspect of your competitors’ businesses. This article will focus on how to conduct a general competitive analysis, but you’ll want to tailor this process to match the needs and goals of your business.
Evaluate your competitors by placing them in strategic groups according to how directly they compete for a share of the customer's dollar. For each competitor or strategic group, list their product or service, its profitability, growth pattern, marketing objectives and assumptions, current and past strategies, organizational and cost structure, strengths and weaknesses, and size (in sales) of the competitor's business. Answer questions such as:
🔘 Who are your competitors?
🔘 What products or services do they sell?
🔘 What is each competitor's market share?
🔘 What are their past strategies?
🔘 What are their current strategies?
🔘 What type of media is used to market their products or services?
🔘 How many hours per week do they purchase to advertise through the media used in this market?
🔘 What are each competitor's strengths and weaknesses?
🔘 What potential threats do your competitors pose?
🔘 What potential opportunities do they make available for you?
A quick and easy way to compare your product or service with similar ones on the market is to make a competition grid. Down the left side of a piece of paper, write the names of four or five products or services that compete with yours. To help you generate this list, think of what your customers would buy if they didn't buy your product or service.
Across the top of the paper, list the main features and characteristics of each product or service. Include such things as target market, price, size, method of distribution, and extent of customer service for a product. For a service, list prospective buyers, where the service is available, price, website, toll-free phone number, and other features that are relevant. A glance at the competition grid will help you see where your product fits in the overall market.
How to Do a Competitive Analysis?
Conduct a routine competitor analysis to understand your competitors' strengths and weaknesses, and to identify gaps in the marketplace.
A competitor analysis can help you enhance your product or service, better serve your target audience, and increase your profits.
A competitor analysis should include your competitors' features, market share, pricing, marketing, differentiators, strengths, weaknesses, geography, culture, and customer reviews.
This article is for new and established small business owners who want to analyze their competition to improve their products or services.
It is important to analyze your competition at various stages of your business to ensure that you are providing the best possible product or service at the right price for your customers. Learn more about what a competitor analysis is, why conducting this analysis routinely can help your business achieve success and the seven-step process for conducting one.
Why is a competitor analysis important?
It is important to conduct routine competitor analyses throughout the lifecycle of your business to stay up to date with market trends and product offerings. A competitor analysis can reveal pertinent information about market saturation, business opportunities, and industry best practices.
It is also important to know how your customers view you in comparison to your competition. A competitor analysis will give you a better idea of what services are currently available to your target customer and what areas are being neglected.
"In some cases, you may find that you are at a competitive disadvantage, in which case you may need to make a change in order to maintain your sales volumes," said Josh Rovner, business consultant and bestselling author of Unbreak the System. "In other cases, you may notice that you have an advantage that could enable you to make a change that increases your sales or profit."
Competitor analysis is important for both offense and defense. Comparing your business to your competition shows you where you can improve as well as where you are excelling. It may even help you identify a new niche that you can take advantage of.
What are the benefits of conducting a competitor analysis?
Analyzing your business against your competitors can help you in many ways. For example, it will reveal which areas of your business, product, or service need improvement. With this knowledge, you can adjust your processes to better serve your target market and increase profit. It can also show you new strategic opportunities to enhance your products or services and grow your business.
"Understanding one's competitors allows one to distinguish oneself from the competition, focus on the underserved market opportunities, determine the services to offer, identify the best practices to employ, and isolate the worst practices and rotten players," said Taffet.
Once you conduct a competitor analysis, you can use it for benchmarking and measuring future growth. Routine analyses will reveal market trends to keep track of and new players to be aware of. It will also help reveal who your current competitors are throughout every stage of business. Be sure to keep your analyses up to date.
"Too many businesses do a competitor analysis early on, and then neglect it once their brand is established," said Colin Schacherbauer, lead content marketer at Investor Deal Room. "Industries are constantly changing, and each time a new company enters your space, they are doing a competitor analysis on you. It's important to continually evaluate your competitors."
What should be included in a competitor analysis?
Conducting a general SWOT analysis and PEST analysis is a good place to start, but there are several other components to consider in competitor analysis. It is important to include as much information as possible to create an accurate assessment of how your business compares to others. You will need to collect information on potential competitors and their features, pricing, service quality, strengths, and weaknesses. You can either build your own competitor analysis or use a competitive analysis template.
From his experience in creating competitor analyses himself, Schacherbauer compiled a list of the top 10 components every competitor analysis should include:
Feature matrix: Find all the features that each direct competitor's product or service has. Keep this in a competitor insight spreadsheet to visualize how companies stack up against one another.
Market share percentage: This helps to identify who the main competitors in your market are. Don't exclude larger competitors completely, as they have much to teach about how to succeed in your industry. Instead, practice the 80/20 rule: 80% direct competitors (companies with similarly sized market shares) and 20% top competitors.
Pricing: Pinpoint how much your competitors charge and where they fall on the quantity vs. quality spectrum.
Marketing: What type of marketing strategy does each competitor employ? Look at competitors' websites, social media presence, the type of events they sponsor, their SEO strategies, their taglines, and current marketing campaigns.
Differentiators: What makes your competitors unique, and what do they advertise as their best qualities?
Strengths: Identify what your competitors are doing well and what works for them. Do reviews indicate they have a superior product? Do they have high brand awareness?
Weaknesses: Identity what each competitor could be doing better. Do they have a weak social media strategy? Do they lack an online store? Is their website outdated? This information can give you a competitive advantage.
Geography: Look at where your competitors are located and the regions they service. Are they brick-and-mortar companies, or is the bulk of their business done online?
Culture: Evaluate your competitors' objectives, employee satisfaction, and company culture. Are they the type of business that advertises the year it was established, or are they modern startups? Read employee reviews for insight into the company culture.
Customer reviews: Analyze your competitors' customer reviews, recording both pros and cons. In a 5-star system, look at 5-star, 3-star, and 1-star reviews. Tip: 3-star reviews are often the most honest.
Rovner recommends including information in your competitive analysis about related trends in your market and region. This will give you a more complete picture of the entire competitive landscape.
"Document what threats are out there that could have a negative impact on your business, and document the opportunities out there that you could take advantage of better than your competitors," said Rovner.
What are the steps to writing a competitor analysis?
When you are writing a competitor analysis, it is important to be as objective and honest as possible. Competitor analysis is a useful tool that can help you improve your business and better serve your audience, so intentionally understating the strength or success of your competitors will only be doing yourself a disservice, as it will yield inaccurate results.
This is Rovner's seven-step process for conducting a competitor analysis:
🔘 Identify the products or services you want to evaluate.
🔘 Identify every direct and indirect competitor for those products or services.
🔘 Research all competitors in person (if applicable) and online (to get a sense of their online presence – or as the sole research method if the product or service is only sold online). Use a group, if possible, to get a variety of opinions on competitor products or services.
🔘 Document your research in a written analysis. This can vary depending on the product or service but often includes comparison charts, graphs, and written text. Make sure your document is substantive and actionable, but not so long that no one will read it.
🔘 Identify areas to improve your own competitiveness. For example, could you improve the quality of your products or services by changing a feature, lower the price of your products or services to be more competitive, or develop a new product or service that addresses the area for improvement?
🔘 Make the improvements you deemed appropriate or necessary.
🔘 Measure your sales and profit based on the changes you made to determine whether they were successful.
🔘 After conducting a competitive analysis, use the information and best practices you've learned from it to improve your business. Put your newfound knowledge into action to distinguish yourself from your competition and better serve your customers. Conduct competitive analyses routinely to stay up to date with market supply and demand and to increase your competitive intelligence.
Key takeaway: To write a competitor analysis, list the product or service you want to evaluate, identify and research your competitors, document your research, evaluate your results, and identify the ways you can improve your competitiveness.
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