- With a competitive analysis, you can discover where your business is doing well, where you need to improve, and which trends you need to get ahead of.
- Complete a competitive analysis when your company isn’t moving forward as fast as you want or when competitors are securing orders from your ideal customers.
- A competitive analysis should examine 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.
Your company chases roughly the same customers as its competitors. You offer comparable products or services to each other. But you’re not entirely sure why you win some orders but lose others. A competitive analysis can provide you with the road map needed to capture a greater share of the market and better understand the future trends that will affect your sector.
How to complete a competitive analysis
Josh Rovner, business consultant and bestselling author of Unbreak the System: Diagnosing and Curing the Ten Critical Flaws in Your Company (Lioncrest Publishing, 2020), shared with us nine steps for completing a competitive analysis.
1. Identify the products or services you want to evaluate.
For most analyses, they will be the products or services that generate the highest revenues or demonstrate the most significant potential for growth.
2. Seek direct competitors.
These companies compete for roughly the same market with comparable products or services. For example, accountants competing against other accountants.
3. Pinpoint indirect competitors.
These companies target the same market but with different products or services. For example, accountants competing against bookkeepers.
4. Examine replacement competitors.
These companies offer a different product or service, but address the same issue as your products or services (for example, apps that assist entrepreneurs).
5. Determine which parts of your competitors’ businesses are worth investigating.
These aspects could be pricing, distribution and delivery strategies, market share, new products or services coming to market, who their long-standing, highest-spending customers are, the quality of after-sales support, and which sales and marketing channels they use.
6. Research all identified competitors.
You may only find minimal accounting and operational records for most competitors, especially nonpublic companies. Other useful information – like target customers, product features, type of staff employed and price points – will be easier to find.
7. Document your research in a written analysis.
Make sure your document is substantive and actionable, but not so long that your staff won’t read it. Comparison charts and graphs are useful to help you and your team visualize your position in the market in relation to your competitors.
8. Identify areas to improve and execute the changes.
Could you improve the quality of your products or services by adding or amending a feature, lowering the price to be more affordable or improving after-sales support? Could you achieve a better ROI on your marketing budget by investing in a more capable CRM for better lead management?
Rovner recommends including information about related trends in your market and region for 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.”
9. Track your results.
Measure your sales with a profit and loss statement to determine if the changes were successful.
Tip: Limit the number of competitors you analyze to 10-12, and focus your attention on direct and indirect competitors with similar market shares rather than replacement competitors.
Competitive analysis explained
A competitive analysis – also known as a competitor analysis – is a way of evaluating how well your business and its products or services are performing compared to other companies selling similar products or services in your market.
“A competitor analysis focuses on identifying market participants positioned to encroach on your opportunity and isolates each participant’s operational strengths, substantive weaknesses, product offerings, market dominance, and missed opportunities,” said David Taffet, CEO of Petal.
Competitor analyses help you improve your business in these ways:
- Identify your strengths and weaknesses. When you know where you’re ahead of the competition, you can focus your marketing message to press home that advantage. When you know where you’re behind, you can better understand how you need to improve your products, services or after-sales to exceed your competitors.
- Understand the marketplace you operate in. You know who many of your competitors are but you won’t know all of them right off the bat and may not be aware of the latest entrants to the market. Identifying your primary competitors (as well as any upcoming threats), and how they differ from your business is key to beating them.
- Evaluate trends in your sector. Which new or improved product, service or feature are competitors offering to gain an advantage? Which trends have they seen that you haven’t yet? By examining the behaviors and actions of other companies in your marketplace, you can judge whether they’ve taken the right course and whether you should be going head-to-head with them. [Related content: 7 E-Commerce Trends to Watch in 2022]
- Plan future growth. Want to be the third-largest firm in your sector instead of the fourth? A competitive analysis gives you the information you need to get there, including how much more you need to sell, the demographics to market and any skill gaps your organization has.
Factors your competitor analysis should include
Colin Schacherbauer, executive marketing assistant at Investor Deal Room, recommended the following 10 components for an effective competitor analysis.
Find all the features that each direct competitor’s product or service has. Keep this information in a competitor insight spreadsheet to visualize how companies stack up against one another.
Market share percentage
Evaluating the marketplace by percentage helps identify the main competitors in your area. Don’t exclude larger competitors entirely, as they have much to teach you about how to succeed in your industry. Instead, practice the 80/20 rule: Keep an eye on 80% direct competitors (companies with similarly sized market shares) and 20% top competitors.
Pinpoint how much your competitors charge and where they fall on the quantity versus quality spectrum.
What type of marketing plan does each competitor employ? Look at competitors’ websites, their social media strategy, the type of events they sponsor, their SEO strategies, their taglines and current marketing campaigns. [Follow these tips to create a great business marketing plan.]
What makes your competitors unique and what do they advertise as their best qualities? How is that different from your company?
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? Can you test a competitor’s products yourself to see where they are performing better?
Identify what each competitor could be doing better to give you a competitive advantage. Do they have a weak social media strategy? Do they lack an online store? Is their website outdated?
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 performed online?
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 recent startups? Read employee reviews for further insight into competitors’ culture. [Learn the best ways to improve your company culture.]
Analyze your competitors’ customer reviews, both positive reviews and negative ones. In a 5-star system, look at 5-star, 3-star and 1-star reviews. Three-star reviews are often the most honest.
Benefits of carrying out a competitive analysis
In an era of digital innovation, no business can remain preserved in time and expect to survive. Companies can disappear overnight if they don’t pay attention to new trends. A clear example of this is Blockbuster’s catastrophic error of initially dismissing Netflix’s services. Today, Netflix is a juggernaut, while Blockbuster is virtually extinct.
Even if your sector is not susceptible to this type of seismic change, it’s worth knowing what drives your clients’ decision-making processes. By keeping a regular eye on your marketplace through a competitive analysis, you’ll also be aware of these trends:
- Changes to competitors’ existing products or services that make them more attractive
- New complementary products or services from your contenders that you could also offer or alter
- The threat posed by new market entrants or transformative products
“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,” Rovner said. “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.”
Did you know?: Some other useful methods are the SWOT analysis (an assessment of your company’s strengths, weaknesses, opportunities and threats), PEST analysis (how external political, economic, social and technological factors affect your business) and BCG matrix (another way to examine the competitive landscape).
How often you should perform a competitive analysis
Regular competitive analysis is key. You may want to do the analysis once a year on a large scale and quarterly on a smaller scale.
“Too many businesses do a competitor analysis early on and then neglect it once their brand is established,” Schacherbauer added. “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.”
Analyzing your business regularly against your competitors will reveal opportunities to improve your products, better serve your target customers and increase levels of profitability. You may also want to consider using another model – like Porter’s Five Forces – to further analyze the competition.
“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,” Taffet said.
Did you know?: Entrepreneur Edward Lowe outpaced his competition by foreseeing a trend: He realized the clay from his father’s industrial absorbent business could be used as a first-of-its-kind kitty litter. Lowe, whose Edward Lowe Foundation is a champion of competitive analyses, saw a space in the marketplace and built his business into a multimillion-dollar company.
How competitive analyses help small businesses
Your successful business today won’t necessarily be a successful tomorrow if you don’t keep an eye on the competition. By employing a competitive analysis, you can evaluate the current marketplace and where you stand compared to your competitors. With that knowledge, you can make adjustments to set your company up for continued success.
Skye Schooley contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.