- 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.
What is a competitor analysis?
A competitor analysis is the process of identifying businesses in your market that offer similar products or services to yours and evaluating them based on a set of predetermined business criteria. A good competitor analysis will help you see your business and competitors through your customers' eyes to pinpoint where you can improve.
"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," David M.M. Taffet, CEO of Petal, told business.com.
Key takeaway: A competitor analysis is an in-depth examination of your competition's strengths and weaknesses to see how your business compares.
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."
A 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.
Key takeaway: A competitor analysis teaches you important information about your market that empowers you to make well-informed business decisions.
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."
[Using CRM software can help track your customers and potential leads, to ensure you’re managing all their needs.]
Key takeaway: A competitor analysis can help you improve your business, satisfy your customers' needs and increase your profit.
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 a 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 your 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: Identify 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 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.
Key takeaway: In your analysis, include competitor information such as features, market share percentage, pricing, marketing strategy, differentiators, strengths, weaknesses, geography, culture and customer reviews.
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. A 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.