by Ernesto Comodo
A competitive analysis is a way to identify competitors and understand competitor’s strengths and weaknesses in relation to your business. It provides both an offensive and defensive strategic context to identify opportunities and threats.
So why would a small business need such a thing?
We have four main points on why a Competitive Analysis can be a good thing for a Small Business owner:
- Helps you identify your product’s unique value proposition
- It can identify areas of opportunities in the marketplace
- Teach you through customer reviews what’s missing in a competitor’s product / service
- Provides you with a benchmark against your competitors which you can measure your growth
Most small businesses and businesses in general have never conducted a comprehensive competitor analysis. instead, most operate on what is called “informal impressions”,
conjectures, intuition and scanning competitor’s website and social media.
As a result, many businesses are at risk of dangerous competitive blind-spots due to a lack of
robust competitor analysis. It is no wonder why most small business go out of business within one year.
It is important to conduct the competitor analysis at various business stages of your business growth and maturity to provide the best possible product / service for your customers.
Determine who your competitors are
The first thing of starting a competitors analysis is to figure out who you’re really competing with so you can compare the data accurately.
Lets start by dividing your “competitors” into two categories: direct and indirect.
Direct competitors
are businesses that offer a product or service that could pass as a similar substitute for yours,
and that operate in your same geographic area.
Inderect Competitors
On the flip side, an indirect competitor is one that provides products that are not the same but could satisfy the same customer need or solve the same problem.
It seems simple enough on paper, but these two terms are often misused.
When comparing your brand, you should only focus on your direct competitors.
Let’s use an example:
Alpha and Beta are both subscription-based services that sell clothes on a monthly basis and serve a similar target audience.
But as we look deeper, we can see that the actual product (clothes in this case) are not really the same; one brand focuses on stylish everyday outfits while the other is workout-centric attire only.
Yes, these brands satisfy the same need for women (having trendy clothes delivered right to their doorstep each month), but they do so with completely different types of clothing, making them indirect competitors.
This means Kate Hudson’s team at Alpha would not want to spend their time studying
Beta too closely since their audiences probably vary quite a bit. Even if it’s only slightly, this tiny variation is enough to make a big difference.
Now, this doesn’t mean you should toss your indirect competitors out the window.
Keep these brands on your radar since they could shift positions at any time and cross over into the direct competitor zone.
Using our example, Alpha could start a workout line, which would certainly change things for Beta.
This is one of the reasons why you’ll want to routinely run a competitor analysis.
The market can and will shift at anytime, and if you’re not constantly scoping it out, you won’t be aware of these changes until it’s too late.
Determine What Info is Important
Now that you have your two lists defined, what data should you collect? Let’s start with the basics:
Company Name
# of employees
Founded
location(s)
Funding
Acquisitions
Number of Customers
Next get as much data as you can on the following:
- Determine what products your competitors offer
- Competitors’ pricing and perks
- Analyze how your competitors market their products.
- Take note of your competition’s content strategy.
- Perform a SWOT Analysis
As you evaluate each component in your competitor analysis (business, sales, and marketing),
get into the habit of performing a simplified SWOT (strengths, weaknesses, opportunities, and threats) analysis at the same time in order to assess an overall grade for each competitor.
Some questions to get you started include:
What is your competitor doing really well with? (Products, content marketing, social
media, etc.)
Where does your competitor have the advantage over your brand?
What is the weakest area for your competitor?
Where does your brand have the advantage over your competitor?
What could they do better with?
In what areas would you consider this competitor as a threat?
Are there opportunities in the market that your competitor has identified?
You’ll be able to compare their weaknesses against your strengths and vice versa.
By doing this, you can better position your company, and you’ll start to uncover areas for improvement within your own brand.
How to Write a Competitive Analysis
Now that you have collected all this data on your competitors how do you write out the competitive analysis? Here is seven points to consider on your write up:
- Choose 7 to 10 competitors.
- Create a spreadsheet to track your data.
- Determine competitor types.
- Identifying positioning.
- Determine competitive advantage and offering.
- Understand how your competition markets themselves.
- Conduct a SWOT analysis.
You can now put all this info on a Competitive Analysis Framework to have your competitors organized. Download your template here.
Next, would be to find out what is your customer perception of your brand in comparison to your competitors by using a Perceptual Map (download template here)
When it comes to generating data you have three options:
1. Go with your gut (based on your experience in the market)
2. Use secondary research data (customer satisfaction data you can find online or in market research reports)
3. Generate your own primary data (create a survey from scratch and survey the market to determine variables and attribute ratings for a list of products/brands)
Going with your gut is sometimes appropriate – especially if you already have extensive experience and knowledge of your market and the dynamics within it.
However, if you’re analyzing markets that you are only vaguely familiar with it’s best to rely on either secondary research reports or primary data you’ve collected yourself in surveys.
For most needs, I expect secondary sources to be sufficient unless the data is old or is missing variables you want to study.
Using Perceptual Maps In Marketing And Innovation
There are three main ways we can use this map:
Value Analysis – make inferences on perceived value and create estimated value curves based on current market norms
Competitive Analysis – know how a certain brand stacks up against the competition and possible competitive scenario analysis
Innovation Opportunity Analysis – look for open spaces or territory where a new product could potentially be positioned successfully
Pitfalls of Creating a Competitive Analysis
Now that you know how to put together a competitive assessment, let’s go over some of the main pitfalls to be aware of that can throw off the insights you’ve gathered.
1. Competitive analysis is not a one-and-done exercise
Never revisiting your original insights (or never updating them, for that matter)
can lead to faulty data and poor decisions. Businesses are constantly evolving, so it’s important to remember that keeping an eye on your competitors is an ongoing process—not something you do once and then never again.
2. Confirmation bias is real
As humans, we have a tendency to jump to conclusions around our assumptions. This is called confirmation bias. As you work through your competitive analysis, it’s important to be aware of your initial assumptions and to test them thoroughly rather than leaning on what you “think” is true about your competitors. Let the data inform your decisions rather than letting assumptions take the lead.
3. Data without action is useless
If you’re putting in the work to do a competitive analysis, be sure that you’re acting on the findings rather than letting them gather virtual dust on your computer, buried in an obscure file folder.
Make a strategic plan around your findings and execute on the unique angles and marketing tactics that you’ve discovered during this process.
4. Working harder instead of smarter
With so many great resources available that simplify the data collection process around competitive analysis today, putting together a top-notch, highly accurate comparison is easier than ever before. Don’t reinvent the wheel and do things the hard way: make the investment into tools that speed up the process and provide the important insights you need to make informed, data-backed decisions about your business.
5. Starting without a direction
If you’re directionless while putting together your competitive analysis and have no clear end objective, the work will be much, much harder. Before diving into research, define your goal and what you hope to learn about your competition.
6. Not accounting for market timing When looking at competitor data, be sure to study how companies have grown and progressed over time rather than examining their approaches at a single fixed point. Sometimes information about how your competitors have evolved their tactics can be even more useful than knowing what they did in the early days (or what they’re doing right now).