Differentiating yourself from your competition is no easy task, but one way you can achieve this is through competitive analysis.
Competitive analysis is a tool that every business owner should have in their kit. It provides an organized method of evaluating competitor performance and your options. By understanding what competitive analysis is and how to use it, you can stay ahead of the curve and thrive.
Every decision you make as a business owner should be intentional. Competitive analysis can give you direction and help you plan for your business ventures moving forward. This guide breaks down the importance of competitive analysis and how it can impact your business.
What is Competitive Analysis?
You can’t always anticipate every hurdle that comes your way. Competitors come and go, and markets shift. Competitive analysis is a way to stay on top of what you can control: your own data compared to everyone else.
So, what is competitive analysis, exactly? It’s a way of figuring out where your business stands with the others in your field. More importantly, a competitive analysis focuses on how you stack up to the competition.
There are many categories and outlets for competitive analysis. A comparison of quarterly sales is a common one. Another is SEO traction.
Competitive analysis researches and tracks as many relevant points of data as possible. You want to know your strengths as a business, and where you fall behind your competitors.
Competitive analysis isn’t an all-inclusive app or program but an approach. It’s a commitment to analyzing the performance of your competitors. It helps you stay ahead of the game, or at least keeps you from falling behind.
Why Competitive Analysis Matters
Every move you make impacts the market, and the market is more than capable of changing on you in turn. Competitors and other companies are always jockeying for positions. Many of them will sell similar products or services as you or address similar issues and needs.
With very few exceptions, your company will get sucked into this maelstrom. You must find out how to stand out among the pack. The best way to do this is to know your enemy.
This might sound extreme, but this is the importance of competitive analysis. It helps you look at who you are up against with an objective eye. It isn’t about reputation, feelings, or jealousy, but raw numbers.
Who has more market share, and for which products? Who is above you in the pecking order, and who is hot on your heels? What are your competitor’s strengths and weaknesses, and what are you going to do about them?
This is why competitive analysis is so crucial. If you want to reach that next level, you need to know everything you can about your competitors.
How You Can Do Competitive Analysis
Doing competitive analysis in business is pretty straightforward on paper. That said, it requires oceans of patience and dedication to doing right. You have to figure out who your competitors are, then get as much relevant info on them as possible.
After that, you can decide what to do based on your analysis. This sounds easy, but we will break it down as much as possible.
The first thing you need to do is identify your competitors and what level of analysis you want. There are direct competitors, indirect competitors, and replacement competitors. Each of these is worth analyzing in its own right, but they have crucial differences.
A direct competitor makes a product or offers a service that is similar to your own. These businesses hit the same market and target audiences and fall into the same industry.
Programmers competing with other programmers are a good example. Another might be grocery stores competing with other grocery stores.
Indirect competitors might fit into another category but hit the same market anyway. Examples include notaries vs. lawyers or supplement stores vs. health-conscious grocers. Indirect competitors can meet the same demand as you, even if it isn’t their primary focus.
A good example is a supermarket that happens to sell pizza or sushi. The supermarket is in indirect competition with a pizzeria or sushi restaurant. Because they focus on much more than only pizza or sushi, they aren’t direct competitors.
Replacement competitors are the last category. Often these get lumped in with indirect competitors. However, there is a significant difference that is worth stressing.
A replacement competitor can solve the same demand as you with a different product. We are no longer comparing pizzas to pizzas or accountants to bookkeepers. We are looking at businesses that offer something similar enough to take away your business.
Fast food is a great example. If you own a pizzeria, then all other pizza joints are in direct competition with you. However, customers only have one stomach.
Consumers need to decide to spend their money on your pizza and not somewhere else on a burger or burrito. Those burger or burrito restaurants are replacement competitors for your pizza shop.
Focusing on Research
Once you have identified your competitor, you need to focus on research. Decide what areas are most important for your competitive analysis. Here is a good non-exhaustive list to get you started:
- Market share
- SEO rank and engagement
- Costs & pricing
- Distribution and delivery methods
- Brand recognition or popularity
- Relative quality
- Innovation or new products/services
- Ideal customer base and location
- General marketing spending
It might be hard to find out everything about the competition since some of this data is sure to be private. That said, focus on your biggest competitors and gather as much information on them as you can. Research what’s in your area and do a Google search to see who the big boys you’re going toe to toe with are.
Something that could help you keep your competitive analysis organized is the SWOT model. SWOT stands for strengths weaknesses, opportunities, and threats. It’s an easy categorical way to guide both the direction of your analysis, but also where your data fits.
First, let’s define the four categories and use a small business example to see it in action.
Strengths and Weaknesses
The first two categories of a competitive analysis using SWOT are strengths and weaknesses. Strengths refer to all the areas a company or business excels at. These are things that let it stand out above and beyond the competition.
For example, companies with top-tier SEO and marketing are always on the first page of google. Businesses with multiple decades of sterling reputation enjoy exceptional customer loyalty. A pharmaceutical company might also have a patent on a drug, making them the first one on the market.
These are all examples of strengths that an organization might have.
Weaknesses are areas that hold competitors back from performing at their best. They could be overpaying for their staff, ingredients, or materials. It could be they have a hard time keeping talented workers due to a lack of competitive financial power.
In this latter case, it would make their best and brightest easier to poach by the competition. This is a strategy that companies who have performed a competitive analysis could pursue. Of course, this assumes a non-compete clause isn’t involved.
Opportunities and Threats
Opportunities and threats are the other two important categories. When organizing SWOT in a 2×2 grid, it is common to put opportunities below strengths. Naturally, threats go in the grid below weaknesses.
Opportunities are factors outside of the competitor’s direct control. For example, an economic boom could make the cost of sourcing materials much cheaper. Depending on distribution networks and existing logistics, this could become a competitive advantage.
A restaurant could increase the quality of its ingredients in the case of an economic boom. It might also allow local ingredients to be competitive with outsourced ones.
Threats are factors that can hurt the organization in a worst-case scenario. If a company is reliant on a specific material, then fluctuating prices could harm them. Many companies reliant on lumber found this out not too long ago.
There are other threats to competitors as well. These include the risk of more competition and disruptions in the labor pool. The pandemic in particular has made the threat of labor disruptions a reality for many.
A Small Business Example: A Patisserie
Let’s use the example of a patisserie to see how SWOT works, and to have a very brief example of competitive analysis.
You make an assortment of baked goods, but you focus on sweeter things. Doughnuts, cakes, and similar items, but not bread or savories.
Business is up and down, and you want to run a competitive analysis to see how your competitors are faring. You have one major competitor on the other side of the highway from you, cutting the city in half.
Rather than focus only on sweets, they dabble in an assortment of baked goods. This makes them an indirect competitor as a bakery, as sweets are not their specialty. To start researching them, you make a SWOT grid and fill it with information.
Using SWOT for Your Competitor
As you gather data, you place it in the grids. You start with strengths and weaknesses.
For strengths, you realize they have a strong customer base. Consumers on that side of the highway love going there. Their cinnamon buns are their best seller.
Part of their popularity comes from using old family recipes. They offer a wider variety of baked goods, which is appealing. Rent is also cheaper on that side of town, which reduces their costs.
Overall they offer better prices and great variety at an acceptable quality. This draws many customers, despite you having more experience and quality.
For weaknesses, you note that they are isolated by the highway. They can’t tap into the customer base on your side of the city as easily. Their side is also a lower-density area, which reduces the total business they can do.
Although they have variety, they also don’t have any specialties. Nothing Instagram-worthy or eye-catching. They offer plain and simple alternatives to your fancier and more gourmet options.
As a result, sales of sweets tend to lag behind others, with rare exceptions. In terms of opportunities and threats, you observe the following. The city implemented a rent freeze on small businesses, which is a huge opportunity.
This gives them the financial breathing room to innovate.
However, there is talk of a new mall nearby. This will almost certainly contain a big-name commercial bakery like Cinnabon. This new competition threatens market share on that side of the highway.
How You Use Your Competitive Analysis
The above example is simple on purpose. Armed with as much organized data as possible, you can figure out where you can make improvements. If the goal is to ensure your business continues to thrive, then there are things you can do.
In the patisserie and bakery example, you can compare market shares for the products you make. How much do their best-selling cinnamon buns eat into your own share?
You’d also want to see how many customers cross the city to frequent both businesses and what you can do to keep more. You could try and optimize prices to appear more attractive. You could also offer fewer fancy alternatives to appeal to a wider base.
You might even dabble in savories to compete on the variety front. If the finances and market on that side look ripe, you might try to open up a second location there to grow market share. Also, if the threat of a new mall is scary enough, you could cancel such plans and pursue a different strategy.
The point is that a proper competitive analysis gives you options. By seeing how your competitor is performing and what they face, you can benefit from this. You can learn from their mistakes and weaknesses and figure out how to make changes to enjoy any similar advantages.
The Importance of Competitive Analysis
Competitive analysis is crucial for any business. Only by knowing how your competitors are doing can you make changes to stay ahead. That said, it’s also crucial to have a team you can trust to help you.
At Five Channels, we’re experienced in helping you grow your business presence. Contact us today.
Owner and Chief Marketing Officer, Jason Hall, and his team specialize in creating brand awareness / traffic and lead generation / marketing funnel and conversion optimization, while utilizing the appropriate marketing channels available within your industry. With diverse clients throughout the world, Jason's team is well connected within many industries to assist with your marketing strategies. With no long term contracts and various levels of service, Jason's team will increase the quality of your online traffic, leads, and sales.
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About the author...
Located in the heart of the Emerald Coast - Destin, FL, founder and Chief Marketing Officer, Jason Hall, and his team specialize in creating brand awareness / traffic and lead generation / marketing funnel and conversion optimization / and PR campaigns, while utilizing the appropriate marketing channels available within your industry.
With diverse clients throughout the world, Jason's team is well connected within many industries to assist with your marketing strategies. With no long term contracts and various levels of service, Jason's team will increase the quality of your online traffic, leads, and sales.