It doesn’t matter how great your idea is, when it comes down to the brass tacks of bringing it to market you don’t want to be playing with guesswork. Your intuition might get you so far, but facts and figures will help you develop your product, service, business plan and marketing strategy by understanding your market, your competition and where the gaps are to the best degree possible. A competitor analysis will help you to make informed decisions, which will ultimately maximise your budget and your chances of commercial success. It’s all about putting in the groundwork. Here’s our guide to running an effective competitor analysis.
What is a competitor analysis?
A competitor analysis is a set of processes by which you can better understand your business opportunities and build your marketing and business development strategy by looking at your competition and assessing their strengths and weaknesses. It’s about helping you to place your business in the best possible position for success by finding and comparing key market metrics between your products and services and those of direct and indirect competitors. This helps to inform an effective sales and marketing strategy as well as business development approach.
A competitor analysis is about:
- Understanding your industry
- Understanding your competition
- Understanding your target market or new potential customer segments
The goals are to:
- Identify gaps in the market
- Gain insights for product/service development
- Uncover market trends
- Market and sell more effectively
To do this you need to:
- Identify your competitors
- Understand what competitors offer
- Research their sales tactics and results (including pricing, shipping costs, marketing, content and technology stack)
- Perform a SWOT analysis and other key research tests
To begin with, you can consider questions like:
- Are your competitors satisfied with their current position in the market?
- What strategic moves are they most likely to make in the coming months?
- Where are they vulnerable?
You want to know:
- How much their product meets customer needs.
- What the price is and what customers are willing to pay for the product or service.
- Where customers are looking for the product or service.
- How competitors advertise or promote their products and services (direct marketing, social media, referrals, organic search, paid search and advertising).
- What their market share is.
What are the benefits of a competitor analysis?
A competitor analysis should be run before starting a business, but it should also be run frequently for established businesses as well. This is because it offers you a large number of benefits. It can help you learn how your competition works, identify potential opportunities where you can out-perform them, stay on top of industry trends and ensure your product is consistently meeting and exceeding industry standards.
Crucially, a competitive analysis gives you a benchmark against which you can measure your growth and understand what ‘good’ looks like in your industry. “Knowledge itself is power” said Sir Francis Bacon, and despite the nearly 500 years since he said it, it remains true.
Key benefits of a competitor analysis include:
- Helping you to understand how to grow your business
Perhaps the greatest benefit of a competitor analysis is that it helps you to understand how to grow your business by ensuring you remain aware of your product’s unique value proposition and. It will enable you to get to grips with evolving trends and gaps in the market as well as understand the real size of the untapped market available to you.
- Increase revenue strategically
By understanding the market and what your competitors are doing, you will be able to make much more targeted decisions about the development of your product, service and marketing strategies. This, in turn, means that you will be able to focus your energies on specific areas of revenue growth rather than guessing by throwing out the proverbial net and hoping to catch a few fish.
- Discover new business opportunities/identify gaps in the market
A competitive analysis tells you where competitors are falling short, which gives you opportunities. It’s always best to approach the world with an open mind. You might know your industry like the back of your hand, but customers and customer wants and needs are constantly evolving. Not only can you learn by listening to competitors and customers, but to those in adjacent industries as well – they could be the key to your next big idea or a nuance that you hadn’t considered.
- Identify changes in the market
For example, during the pandemic ecommerce underwent a major shift. Some businesses ran around making rash decisions based on gut instinct. Those that thrived did so because they took the temperature of the market, their competitors and responded to what people wanted.
- Make sure you remain relevant in the market/inform future marketing efforts
By looking at what your competitor is doing right, as well as what they’re doing wrong, it helps you to stay relevant and market relevantly too. You can spend a lot of money on marketing and product/service development if you’re just throwing darts at a board without really knowing what you’re doing. In a vast world with masses of competition, strategy matters. You don’t just want to know who’s doing what and whether there’s space for your business to enter the market or to improve its standing, you want to know specifics. You need to know what you’re up against to understand each of the following:
- The Total Addressable Market (TAM): This is the overall revenue opportunity available to a product or service if a business achieved 100% market share.
- Serviceable Addressable Market (SAM): This is the specific potential audience for your product or professional service. This metric is the maximum market value your company could potentially have.
- Serviceable Obtainable Market (SOM): This is the percentage of the market that the company can realistically obtain.
Problems with a competitive analysis
A competitive analysis does have its limitations and it’s important to be aware of them while you’re consulting them and reviewing the results.
- The main one is confirmation bias – which is looking at the results and interpreting them based on preconceived ideas – this won’t necessarily help you, so make sure you’re being objective.
- Just because your analysis showed something last year doesn’t mean the same is true this year – make sure you do it regularly to keep your information up to date.
What should a competitor analysis include?
A competitor analysis can involve a number of different elements, all of which will help you to ascertain competition, the real market share available and where you need to compete. It all comes back to these three elements:
- Understanding your industry
- Understanding your competition
- Understanding yourself (your business and your customers)
Each of these requires a different set of analysis within your overall research. How do you write a competitor analysis? Here’s what we include:
Understanding your industry:
Understanding your industry as a whole allows you to set the scene for where, why and how your business is relevant and what its opportunities are within the market. It also means getting rid of any assumptions and dealing with facts and data. Two popular tools for this stage of your competitor analysis are:
- Porter’s Five Forces
Porter’s Five Forces model is used to understand the competitive landscape facing a company as well as your position in it. In short, it determines the number and power of a company’s competitive rivals both now and in the near future, which may impact your company’s success. The downsides to this model is that it’s backwards looking, but it still gives you a sense of where you sit. The five forces are:
- The threat of new market entrants
- The bargaining power of buyers
- The bargaining power of suppliers
- The threat of new substitutes
- Competitive rivalry
How to do it:
- Gather all relevant materials where possible, including sales and performance figures for competitors, intelligence on your customers/feedback, supplier information.
- Ask yourself questions about how easy it is for newcomers to enter the market, whether they’re large, established organisations or new disruptors. For example, are there regulation or legal requirements in place, particular budgeting needs or other barriers to entry.
- Stepping outside your own product or service, think about how easy it would be to replace what you do with something entirely different (industry disruption). Consider whether there are already alternatives on the market, how easy is it for customers to switch? What’s brand loyalty like in the marketplace?
- Now look at your suppliers. How many are there? Are you vulnerable to limited options? Is what they supply unique and why? How important are you to your suppliers?
- Look at your customers. How and where have you lost sales or won them? How many alternative options do they have? How easy is it for them to go to someone else? Are they price sensitive? Are they educated in your product/do they need to be? How strong is their brand loyalty?
- With all of that information, you can now look at the competition. Knowing the power of buyers and suppliers, look at how many direct and indirect competitors there are? How big is the marketplace? How is industry growth as a whole? Have you lost to competitors to date, and if so, why?
- The Brand Development Index (BDI) and Category Development Index (CDI)
The Brand Development Index (BDI) and Category Development Index (CDI) are both indices that compare how relatively strong a market is with its overall sales.
The BDI is a ratio that shows the level of a brand’s performance in a defined customer segment. It considered the relationship between total sales in a company and the population of a specific market. The purpose is to improve your marketing and sales techniques.
The CDI measures the sales performance of a category of goods or services in a specific group by comparing figures with the average performance among all consumers.
How to do it:
- To do a brand development index, divide the percentage of brand sales in the market by the percentage of population in the market.
- Your category development index is the percentage of your market sales divided by the total number of consumers in the market, or the percentage of your total sales in a product category multiplied by 100.
Understanding your competition:
You can’t do a competitor analysis without looking at your competitors. First of all, do you know who they are? This should include both direct and indirect competitors:
- An example of direct competitors would be Amazon Prime and Netflix.
- An example of indirect competition might be a company that sells coffee vs a company that sells tea.
Your competitors will fall into four categories: niche (new or small companies), game changers (emerging companies growing at pace), established (large business with an established customer base), leaders (those with a large audience and rapid growth). While you probably already know some of your competitors, you can identify others that you’re less aware of through:
- Market research: ask your sales team which companies come up regularly in the sales process or issue surveys amongst customers. You can also use the power of Google!
- Customer feedback: ask customers why they chose you and who else they were considering.
- Social media and online communities: Look for what recommendations people are making on social media and forums like Reddit and Quora.
Next, do you understand your competitors? Understanding your competition is at the heart of a competitive analysis. It helps you know what you’re up against, and understand what options your customers have. You need to analyse their market share as well as your own. Doing this can give you a better understanding of where the gaps are in your business and in the market, and where best to invest in your own development. It also helps you to understand what you’re up against. A SWOT analysis is a great way to do that, and you can apply it to both competitor companies and your own.
SWOT Analysis
What is a competitor SWOT analysis? A SWOT analysis looks at the strengths, weaknesses, opportunities, and threats for a business and its operations both now and in the near future. It’s designed to help you develop your strategic goals as a company. These four things are analysed to give a rough idea of where the company stands in comparison to its competition.
How to do it:
A SWOT analysis can be done fairly simply:
- Determine and list the strengths of the business. e.g: cheap prices, fast service.
- Determine and list the weaknesses of the business. e.g: limited growth opportunities, poor online reviews.
- Determine and list the opportunities of the business. e.g: growing market opportunities in an adjacent area, opportunity to improve customer experience.
- Determine and list the threats of the business. e.g: changes in consumer interests, a notable competitor in the marketplace.
Understanding yourself:
Once you’ve gathered your information, you can turn the focus back to your company. Much like understanding your competition and your industry as a whole, looking at your own business is ultimately where your interest lies, and this means both having a very honest look at your own business, as well as recognising where your own blindspots are and getting additional support from those who have knowledge you don’t. This is especially important when you’re looking to expand into a new market, perhaps one that you are less personally familiar with than your domestic or primary audience. Using your competitor analysis as a baseline is an integral part of understanding where your business sits within that. You can begin with a SWOT analysis on your own company, and also include the following:
PEST Analysis
A PEST analysis is very similar to a SWOT analysis, looking at the internal and external environments of a business, but it also takes environmental analysis into further detail. Rather than purely looking at a company’s strengths and weaknesses, you zone in on external factors that affect how your business might operate in the surrounding environment. These factors are: political, economic, social and technological.
How to do it:
Once again, this analysis is a daily simple process, but it requires you and your team to really think and understand the world around you.
- Identify the political factors that may impact your business. e.g: Government grants, specific taxes, new policies or legislation.
- Identify the economic factors that may impact your business. e.g: affordability, average local income, variable factors like the cost of gas.
- Identify the social factors that may impact your business. e.g: public consciousness around carbon emissions, hot social topics.
- Identify the technological factors that may impact your business. e.g: infrastructure limitations that may impact your product or service.
Gap Analysis
A gap analysis is where you look at the difference between your current trajectory and your desired trajectory in order to adapt your strategy to get to where you already know you want to go as a business. This is particularly useful if you’re underperforming against targets because you can use it to identify inefficiencies within the organisation.
How to do it:
- Identify your existing process. e.g: products are made by one person.
- Identify your existing outcomes. e.g: X number of products produced per day.
- Identify your desired outcome. e.g: we want to make Y products per day.
- Identify and document the gap. e.g: this is a difference of Z products.
- Identify the process to achieve the desired outcome. e.g: divide production into separate, smaller tasks between more people.
- Develop the means to fill the gap. e.g: hire a new employee/new machinery.
- Develop and prioritise requirements to bridge the gap.
Whether you’re starting a new business, thinking about expanding into new markets or overseas territories, or are troubleshooting within your company in order to make it more productive and more successful, a competitor analysis is always a healthy exercise to undertake from time to time. Even if everything is great, it can always be better, you can always learn more. Who knows, you might even identify an opportunity you didn’t know existed! Need some help? My team and I are experts at putting a company through its paces. Get in touch and we’ll show you!
