No business operates in a bubble. If you’re a small business owner, chances are you think about your competition a lot. But what should you focus on, and what should you do with that information?
That’s where a competitor analysis can help. At any stage of your business, it’s worth taking time to conduct one. You’ll identify competitors, research their marketing strategies, and assess your brand’s strengths and weaknesses.
Before any big game, a good sports team spends time studying their opponent. Coaches will do research, watch game footage, and put together a scouting report on each opposing player. A competitor analysis is like a scouting report for your business—a tool for designing a game plan that helps your company succeed.
What is a competitor analysis?
A competitor analysis, also referred to as a 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.
Why do a competitor analysis?
More often than not, small business owners find themselves juggling many tasks at once. Even amid a busy schedule, though, it’s worth taking the time to do a competitor analysis. It can benefit your business by helping you:
- Identify your business’s strengths and weaknesses.
- Understand your market.
- Spot industry trends.
- Set benchmarks for future growth.
Identify your business’s strengths and weaknesses
By studying how your competitors are perceived, you can draw conclusions about your own brand’s strengths and weaknesses. Knowing your company’s strengths can inform your positioning in the market, or the image of your product or service that you want members of your target audience to have in their minds. It’s essential to clearly communicate to potential customers why your product or service is the best choice of all those available.
Being aware of your company’s weaknesses is just as important in helping your business grow. Understanding where you fall short of your customers’ expectations can help you identify areas where you may want to invest time and resources.
You might learn that customers prefer your competitors’ customer service, for example. Study your competition to find out what they’re doing right, and see what you can apply to your business.
Understand your market
While identifying competitors, you may find companies that you didn’t know about or that you didn’t consider part of your competition before. Knowing who your competitors are is the first step to surpassing them.
Conducting a thorough assessment of what your competitors offer may also help you identify areas where your market is underserved. If you find gaps between what your competitors offer and what customers want, you can make the first move and expand your own offerings to satisfy those unmet customer needs.
Spot industry trends
Studying the competition can also help you see which way the industry as a whole is moving. However, you should never do something just because your competitors are doing it. Copying the competition without really considering your own place in the market rarely, if ever, leads to success.
If you see your competitors doing something that you’re not, don’t rush to replicate their offering. Instead, evaluate what your customers’ needs are and how you can create value for them. It’s often better to zag when everyone else zigs.
Set benchmarks for future growth
When doing a competitor analysis, you should include companies that are both larger and smaller than your own. Studying well-established businesses in your industry can give you a model of what success looks like and a reference point against which to compare your future growth. On the other hand, researching new entrants into your industry tells you what companies may threaten your market share in the future.
When should you do a competitor analysis?
Conducting a thorough competitive analysis is always a good idea when starting a new business. However, a competitor analysis isn’t just for startups. It’s a tool that can—and should—be used at every stage of the business life cycle. Periodically revisiting and updating your competitor analysis, or conducting one from scratch, will help you identify new trends in the market and maintain a competitive advantage over other companies in your industry.
How to do a competitor analysis
Figuring out what to focus on when conducting a competitive analysis can be tricky. Below are 6 steps to help you get started. Before you begin your competitor analysis, consider what you want to get out of it. Add any other areas of research that align with these goals.
1. Identify your competitors
To create a list of potential competitors, consider where your customers would turn if they didn’t buy from your company. An easy way to start is to search your product name or category on Google or another search engine and explore the results. You can also survey or interview existing customers to ask them what alternatives they considered before deciding on your product or service.
Keep your list to 10 or fewer competitors so that you can devote enough time and attention to researching each of them. When you finalize your list, aim to include a diverse set of companies to get an accurate assessment of what the market is like. You should consider businesses that fall into each of the 3 categories of competitors.
Direct competitors sell a similar product or service to a similar target audience. These are likely the companies that first come to mind when you think of your competition. For example, McDonald’s likely considers other fast food burger chains like Wendy’s and Burger King to be its direct competitors.
Indirect competitors sell a different product or service in the same category but target an audience similar to yours. For example, takeout pizza restaurants like Domino’s and Papa John’s are indirect competitors of McDonald’s.
Replacement competitors exist outside your product category, but they satisfy a similar customer need. For McDonald’s, replacement competitors could be any solution that consumers turn to when they’re hungry, including products such as frozen meals. Of the 3 types of competitors, replacement competitors are the hardest to identify.
When conducting a competitor analysis, you should focus most of your attention on direct and indirect competitors. Still, it’s worth briefly taking stock of potential replacement competitors that could threaten your business prospects.
2. Create a competitor matrix
Before you dive into your competitor analysis, take a moment to get organized. A competitor matrix, also known as a competitor grid, is a table or spreadsheet you can use to compile your research. This will make it easier to compare your findings across competitors and spot larger trends.
Start by devoting one row or column to each competitor that you’ve identified. On the other axis, list data points or categories of information you’d like to find out about each competitor. Don’t worry if you’re not sure what you should be looking for at this point. You can also always add more categories as you progress through your research.
3. Gather background information
Once you have a list of competitors to research, start learning about their businesses. Look for the most basic information first, and then build your way up from there. Start by looking at company websites, social media pages, and any news articles that have been published about them. Here’s some basic information that you may want to look for.
This includes information such as founding date, funding sources, and any mergers or acquisitions they have been involved with. You can often find this information by reading the “About” section of their website or browsing past press releases from the company. Studying how your competitors got to where they are today will give you a more complete understanding of their businesses.
This will vary greatly based on your industry. If you’re in the e-commerce business, you could be competing against companies that sell their products worldwide. For traditional brick-and-mortar businesses, your competition is likely highly localized. Either way, it’s always smart to know where your competition is based and where they sell.
How many people do your competitors employ? LinkedIn and Glassdoor are helpful resources for this kind of data. You’ll also want to look into how many customers your competitors have and how much revenue they generate. This information will likely be easily accessible online for larger companies. For smaller and privately held companies, you might have to make do with rough estimates. Knowing how large your competitors are will help you better contextualize the rest of the data you collect.
4. Profile your competition’s target customers
A company is nothing without its customers. Getting an idea of who your competitors sell to will tell you a lot about their businesses. To pinpoint the target customer for any business:
- Read their mission statement.
- Look at what kind of messaging they use.
- Track who they interact with on social media.
- See if they feature any existing customers in their content.
Use this information to construct a profile of who your competitors are trying to reach with their products or services. These customer profiles will probably resemble your own target customers—these are your competitors, after all—so make note of even small differences.
5. Focus on the 4 P’s
Now that you’ve identified the target customer for each competitor, it’s time to look into how they go about reaching that segment of the market. This will require a deep dive into their marketing strategies.
The marketing mix, also known as the 4 P’s—product, price, promotion, and place—covers the must-have elements when bringing a product to market. As part of your research, ask yourself the following questions for each competitor you’ve selected.
- What are they selling?
- What features are included in their product or service?
- What is most appealing to customers about the product or service? What are some weak points of the product or service? (Pro tip: Check out customer reviews.)
- What kind of pricing model do they use? Is it a one-time purchase or a subscription?
- How much do they charge for their product or service? Do they offer sales or discounts?
- How does their pricing reflect the quality, or perceived quality, of their product or service?
- How do they get the word out about their product or service? What advertising channels (social media, email marketing, print advertisements, etc.) do they use?
- What elements of their product or service do they emphasize? What’s their unique selling proposition?
- What’s their company story? How do they talk about their brand?
- Where do they sell their product? Do they sell online or in brick-and-mortar locations?
- Do they sell to customers directly, or do they partner with retailers or third-party marketplaces?
These questions are meant to be a starting point. Feel free to expand on them and tailor your questions to your industry and the goals of your research.
You’ll likely find a lot of information. Try to condense your findings into short bullet points that you can easily reference later. Be sure to include quantitative data where appropriate if you’re able to find it.
6. Analyze strengths and weaknesses—yours and your competitors’
Using the information you’ve collected, consider the strengths and weaknesses of each of your selected competitors. Ask yourself why consumers choose a particular company’s product or service over the other available options. Record your conclusions in your spreadsheet.
Last, consider your own company’s strengths and weaknesses. How does your business compare to the competitors you’ve researched? Knowing what sets your business apart from the competition—and where it falls short of expectations—can help you better serve your target customers.
A competitor analysis sets you up for success
Completing a competitive analysis isn’t the end of your strategic planning—it’s just the beginning. Don’t let your hard work go to waste. Use the insights you’ve collected to guide your strategic decision-making.
Not sure where to start? It can be helpful to conduct a SWOT analysis, in which you evaluate your strengths, weaknesses, opportunities, and threats. This can help you sift through the information you collected during your competitor analysis and identify actionable next steps for your business.
Using a competitive analysis as part of your strategic planning is an ongoing process. You can always refer back to your research whenever you need to make an important decision for your business. To stay ahead of the competition, you should regularly revisit and update your competitor analysis.
Whether your company is big or small, well established or just starting out, it’s essential to keep your competition in mind. Conduct a competitor analysis today to set your business up for success.