As Chinese general, military strategist and writer Sun Tzu once said in The Art of War, “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
Transforming a great new idea or an existing product or service into a real success is a lot like fighting a war. Each new day brings a different battle or challenge to overcome as you march toward the larger objective of winning the war in your chosen marketplace. How to conduct a competitive analysis?
In a brand-eat-brand business world, having great ideas, a strong R&D team and plenty of investment capital all go a long way toward helping you gain victory, but those alone are not enough. You also have to truly understand your competition. This is where how to conduct a competitive analysis comes in.
What is a Competitive Analysis?
A competitive analysis is an important part of the intelligence gathering that you should be doing on a regular basis. Some companies only study their competitors when they’re getting established and writing a business plan. The reality is, you should be studying your competition regularly, at least once a year to stay abreast of changing markets and market players.
A competitive analysis is a proactive, structured process used to identify competitors, as well as to detect and examine the factors that make those competitors different. By performing a competitive analysis, you can determine the strengths and weaknesses of your competitors’ business and the products and services they offer.
How to Conduct a Competitive Analysis? Why It’s Important?
How to conduct a competitive analysis? A competitive analysis helps you answer the important question: “How am I doing relative to…?” While performing the analysis, you’ll come to better understand your market and relevant trends within it. You’ll learn who your competitors are and how you compare to them.
Such knowledge is ultimately essential for strategically positioning your brand. You can’t differentiate yourself from your competitors if you don’t know who they are, what they do and how they do it. As we’ve previously discussed in a related article about brand positioning, you should be able to clearly and concisely articulate the unique value of your product or service in relation to your chief competition.
With a solid understanding of your competition and a clearly formulated brand position, you will be armed with the right information to develop an effective general marketing plan for your target audience, as well as specific strategies for implementing it.
Taking the time to do a competitive analysis yields other possible benefits. By closely studying your competition, you may identify gaps in the market — or opportunities — for new products and services, or you may discover new and better ways to connect with your target market.
Define Your Competition
The first step in performing a competitive analysis is identifying your competitors. An easy way to start is by searching online for your company and keywords that relate to your industry and its product/services. You can also read trade publications or simply ask customers about other companies they considered before picking you.
Competitors come in two varieties: direct and indirect. Direct competitors have offerings that are similar enough to substitute for yours, and they operate in your same geographic area. When identifying competitors, don’t limit yourself to finding those who do exactly what you do; be open minded and also consider competitors who solve a similar customer need with a totally different approach, and be sure to consider relevant online AND brick-and-mortar competitors.
Indirect competitors provide products or services that aren’t exactly the same as your offerings, but they could still satisfy your customers’ needs or solve their problems. While direct competitors are, in general, more dangerous to you than indirect competitors because they target the same problems, customers and product categories, knowing about your indirect competitors is important, too. Indirect competitors can be very well positioned to add new offerings that would directly compete with you, especially if they already sell other products or services to your customers or if they sell the same products and services in other geographic areas.
To brainstorm a list of possible direct and indirect competitors, try asking the question: What would your customers buy if they couldn’t buy your service or product?
Take a Closer Look at Your Competition and What They Sell
Once you’ve identified who you are battling, it’s time to get to know them better. We suggest asking the following questions:
- How big is the competitor in terms of revenue generated and number of employees?
- Is the competitor growing, shrinking or staying stable size-wise?
- How old is the competitor?
- Where is the competitor located?
- How is the competitor funded?
- What business model does the competitor use? (For example, low cost or self-serve vs. luxury or premium)
- What mergers and acquisitions have recently involved the competitor?
- What market share does the competitor already have?
- Is the competitor an industry influencer?
- What are the competitor’s objectives?
- What are the competitor’s strengths and weaknesses?
- What threats do the competitor pose to you?
- What opportunities does having this competitor give you?
- What kind of customer reviews does the competitor get?
- What kind of employee reviews does the competitor get?
Next, you need to know more about your competitors’ products and services. It’s like understanding what weapons they’re bringing to the battlefield. We suggest asking the following questions for each competing product or service:
- What are its features?
- How does it work?
- How much does it cost?
- What are its benefits and strengths?
- What are its weaknesses?
- How is it distributed to customers? Where and how can customers buy it?
- Where are its customers located?
- How many are sold?
- How does current and projected demand compare to supply?
- What kind of customer service or support is available?
It can be relatively easier or harder to obtain this information depending on whether a competitor is publicly or privately held. Some companies disclose more past performance results and forecasts than others.
Competing for Customers
When it comes to competition, it’s not just about who is selling or what they are selling. It’s also about how it’s being sold. You want to understand how your competitors are acquiring their customers. Think of it as learning about how they wage their war.
Studying competitor messaging can tell you a lot. Yes, what they say is important, but so is how, when and where they say it. Analyzing the following information for each competitor can teach you how they acquire and retain customers:
- URLs owned and operated
- Website statistics (such as traffic, bounce rates, conversions, unique visitors and referral sources)
- Website copy and keywords
- Social media channels used, content shared and follower statistics and demographics
- Print brochures and catalogs
- Taglines and slogans
- Customer acquisition strategies (discounts, free trials, samples)
- Press releases issued
- Media appearances (mentions in articles, sponsorships, reviews, etc.)
- Interviews given by key personnel
- Events (sponsored or participatory)
Ready, Set, Analyze …
It’s a good idea to analyze your competitors on a regular basis, such as once a year during your business’s off-season when you can take advantage of some downtime to perform a new analysis or update a previous one.
But if you’re in a particularly volatile industry, you may want to evaluate your competition more frequently. In today’s fast-paced business environment, with significant shifts happening in so many different industries, businesses and products are always coming and going, and new categories pop up all the time.
To get started with how to conduct your competitive analysis next, check out Cobalt’s interactive worksheet.
Shine like Sun
A lot of factors go into winning on the battlefield and in the marketplace. With consumers having more choices than ever before, the playing field is crowded and often contains more than one rival. Knowing your opponents — like Sun Tzu says — and their strengths and weaknesses should form an integral part of your intelligence efforts because having that information and using it well in battle will ultimately increase your chances for success.
Four Common Mistakes to Avoid When Analyzing Your Competitors
Don’t be blinded by size or geography
Focus not only on companies of the same size, but those that are larger AND smaller. Be aware of both online and brick-and-mortar competitors, regardless of location. A competitor doesn’t have to be in the same place as you to serve the same customers you serve.
You perform a competitive analysis to better understand your competitors, but that doesn’t mean you should blindly copy what they do. You might or might not already be the industry leader. Your competition may or may not know what they are doing. For example, just because a competitor is spending a lot of money on advertising in a certain way doesn’t mean that it’s working.
Don’t ignore your customers
What your competitors do is important, but it’s not the only source of input that should inform your strategic plan. To best serve your customers, take the time to understand what your customers truly want by asking them for and listening to their feedback. What you ultimately do may or may not be like what your competitors are doing.
Don’t spend too much time on it
A competitive analysis is just one important piece of your overall marketing efforts. Yes, it is important, but be sure to save some time and energy to actually use what you’ve found to develop your own marketing plan and implement it.