In the world of business, understanding where you stand in relation to your competitors is essential. It’s like sailing – in a race you need to know the positions of other ships and of weather systems to navigate effectively. This is where a competitor analysis comes into play – studying your competitors to shape your business’s future.
As management guru Michael Porter said, “The essence of strategy is choosing what not to do.” A competitor analysis shows what’s working, or not, in your industry, gaps to fill, and where not to compete directly so you can differentiate successfully.
By understanding what your competitors have done well and poorly in the past, you can gain insights into how they are likely to behave in the future. The analysis also provides a benchmark against which you can measure your performance and identify areas for improvement, giving you the information necessary to develop your own strategies and tactics to stay ahead of the competition.
Why Competitor Analysis Matters
Competitor analysis is more than just a buzzword; it’s a strategic necessity. It provides you with invaluable insights into your competitive landscape, helping you make informed decisions, refine your strategies, and gain a competitive edge. Here’s why it matters:
- Identifying Strengths and Weaknesses: By studying your competitors, you can pinpoint their strengths and weaknesses, enabling you to capitalise on their weaknesses while safeguarding against their strengths.
- Market Positioning: Competitor analysis helps you understand your position in the market. Are you a market leader, a challenger, or a follower? Knowing this helps you fine-tune your marketing and branding strategies.
- Product and Service Enhancement: Analysing your competitors’ offerings can inspire product or service enhancements. You can identify gaps in the market or areas where you can outperform them.
- Set Unique Objectives: By analysing your competitors, you can set unique objectives that align with your business goals and values. This helps you stay focused on what matters most and avoid getting distracted by irrelevant information.
- Develop a Competitive Advantage: A competitor analysis can help you develop a competitive advantage by identifying gaps in the market that you can exploit. This can lead to new products, services, or marketing strategies that set your business apart from the competition.
- Improve Operations: Conducting a competitor analysis can help you identify areas where you can improve your operations, such as reducing costs, improving efficiency, or enhancing customer service.
- Customer Insights: Understanding your competitors’ customer base can reveal valuable insights about your target audience. It can help you tailor your marketing efforts to attract and retain customers more effectively.
The Competitor Analysis Process
Now that we’ve established its importance, let’s delve into the steps for performing a competitor analysis:
- Identify Your Competitors
Start by making a list of your competitors. These can be direct competitors offering similar products or services, as well as indirect competitors who may fulfil the same customer needs but in different ways. For example, video conferencing tools compete indirectly with airlines for business travel. Broaden your perspective to get a holistic view of alternatives customers consider. Don’t limit your analysis to just local businesses; consider global players too.
Having identified the population of competitors, determine the key ones for your analysis so that you don’t become overwhelmed. Focus on 3-4 direct competitors who offer similar products/services and target the same customer segments and add the main indirect competitors who satisfy the same customer needs differently.
- Gather Information
Once you’ve identified your competitors, gather information about them. This includes their products or services, pricing strategies, target demographics, market share, and their online and offline presence. Utilise online resources, industry reports, and social media to gather this data.
Aim to understand the complete picture of competitor offerings, positioning, strategies, and business models. Study their website and marketing materials to analyse product features, pricing, promotions, and messaging. What demand are they fulfilling? What unique value do they convey?
Subscribe to their communications for ongoing monitoring. Review their press coverage and thought leadership pieces to glean strategic insights from announcements and trends.
- Customer Feedback
Take a deep dive into customer reviews and feedback for your competitors. What do customers love about their products or services? Check their social media and online reviews to see customer perspectives and responses. Talk to any contacts who use competitor products/services to get candid comparative opinions.
What are the common complaints and what gaps or pain points in their customer experience can you identify? This information can guide your own product/service improvements.
- Pricing Strategies
Analyse your competitors’ pricing strategies. Are they pricing higher to position themselves as premium providers, or are they adopting a low-cost strategy to gain market share? What is their value proposition, and does it resonate with reality? Look at their distribution channels and how pricing and costs are affected by this. How do their inventory and product availability levels compare with yours?
Consider how your pricing compares and whether adjustments are needed.
- Marketing and Promotion
Examine your competitors’ marketing and promotional efforts. What channels are they using? Are they active on social media, content marketing, or traditional advertising? Have they occupied any thought leadership positions in certain sectors? Do they run regular promotional activities? What about sponsorship of events and/or causes?
Track product/service launches, partnerships, acquisitions, executive leadership changes, and litigation. Analyse what competitors prioritise in their messaging – for example, is it localisation, speed, support, or social responsibility? Their strategies provide clues to industry trends and demand drivers you may wish to take advantage of.
Assess the effectiveness of their marketing campaigns and compare these with your own.
Some industries or segments have high levels of competitive intensity with many fierce rivals, while others have just a few players. Assessing intensity reveals risks like price wars, and can guide your strategy. Highly competitive areas will require differentiation and aggressive sales efforts to grab market share while less contested spaces allow room for testing and growth.
Identify what sets your competitors apart from one another and from your own business. What unique value propositions do they offer? Understanding their differentiation strategies can help you refine your own.
- SWOT Analysis
Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) for each of your competitors. Assess their strengths and weaknesses in terms of product quality, customer service / reviews, marketing strategies, routes to market and financial stability. Consider your own capabilities and performance compared with your competitors across key attributes like pricing, product features, technology, services, support options, and brand reputation. Identify opportunities they may be missing out on and the threats they face.
Look for emerging trends, gaps in the market, or underserved customer segments that your competitors may have overlooked. Identify any disruptive technologies or new market entrants that could pose opportunities or threats to your business. This analysis will assist you in refining your business strategy, exploring new markets, and developing innovative solutions.
A competitor analysis can reveal partnership opportunities too. Competitors with complementary capabilities may become strategically valuable partners to expand your reach or capabilities. Maybe a competitor has distribution channels you lack. Exploring creative co-marketing partnerships with industry peers can help you access new segments while benefiting partners too.
Estimate competitors’ customer base and market share using available data like public revenue reports. This helps size up their standing and penetration. Look at trends – is their share growing or declining over time? Dropping share indicates potential weaknesses to exploit. Rising share suggests a need to re-evaluate their approach and improve your value proposition.
Compare your own performance metrics to those of your competitors, too, including key performance indicators (KPIs) like customer acquisition cost, customer retention rate, and revenue growth. Where are you excelling, and where can you improve?
- Strategy Formulation
After gathering and analysing all this data, it’s time to formulate your strategy. Identify areas where you can capitalize on your competitors’ weaknesses and align your strengths. Are there opportunities in emerging market segments or trends, and/or with partnerships? What are the threats from current competitors, and from new emerging ones?
Set clear objectives and tactics based on your findings.
- Continuous Monitoring
Competitor analysis is not a one-time exercise. The business landscape is dynamic, and to stay ahead of the competition, you must continually monitor and adapt to changing market conditions and competitor landscapes. Regularly revisit your competitor analysis to identify new trends, shifts in strategies, or emerging players. This ongoing assessment will help you refine your business approach, make proactive adjustments, and maintain a competitive advantage.
In the business world, knowledge is power, and competitor analysis provides you with the knowledge you need to succeed. By studying your competitors, past and present, you gain valuable insights into the market, your position within it, and opportunities for growth.
And it’s not a one-time exercise but an ongoing process that helps you stay aware of market trends and adjust your tactics accordingly. Remember, the goal is not to imitate but to innovate and differentiate your business.
So, don’t just compete; compete intelligently by understanding your competition inside and out, and embrace the power of competitor analysis to propel your business forward.
When did you last conduct a Competitor Analysis of your business and update your strategy?
If you’d like learn more on this topic, the following articles and posts might be of interest.
In this month’s focus on Assessing Your Situation:
- The Power of a SWOT Analysis – “Know yourself and you will win all battles.” – Sun Tzu
- Mastering Difficult Conversations (coming soon)
- Is Your Strategy Fit for Purpose?
- Where is YOUR Next Major Competitor Coming From?
- “Do not go where the path may lead, go instead where there is no path and leave a trail.” – Ralph Waldo Emerson
- Is This the Most Important Leadership Skill for Success?
- “Never change things by fighting the existing reality…to change something build a new model that makes the existing model obsolete.” – R. Buckminster Fuller
- “Wonder what your customer really wants? Ask. Don’t tell.” – Lisa Stone
McKinsey: Getting into your competitor’s head
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