What is Competitor Analysis? How to Conduct Competitive Research
In this comprehensive guide, we will explore the critical components of conducting a competitor analysis, a pivotal task for businesses striving for success in today’s competitive marketplace. We will ensure an understanding of the essence of competitor analysis and its profound significance for your business. Let’s begin this journey towards sharpening your competitive edge.
What is competitor analysis?
Competitor analysis is a strategic method of analysis that allows you to systematically examine and evaluate competitors across your industry and marketplace. It is a process of gathering, analyzing, and interpreting information about your competitors to gain insights into their strategies, strengths, weaknesses, and market positioning.
What is the importance of competitor analysis?
Competitor analysis holds significant importance for businesses operating in today’s business landscape. Here are several key reasons why it’s crucial:
- Insight into core strategy: Competitor analysis provides valuable insights into the strategies that are working within your industry. By analyzing their successes and failures, you can adapt your own strategies accordingly.
- Identifying new opportunities: With a complete understanding of your competitors, you can uncover new market segments and niches. These are areas where your competitors might not be fully catering to customer needs, leaving room for your business to thrive.
- Understand industry risk: Competitor analysis allows you to anticipate potential threats and challenges within your industry. This approach enables you to develop contingency plans and strategies to counteract these risks effectively.
- Improve market positioning: By assessing where your competitors stand in the market, you can identify gaps or areas where you can differentiate your business. This can lead to a more effective and unique market positioning.
- Guide product development: By studying your competitors’ products or services, you can identify areas for improvement or innovation. This can guide your product development efforts and help you create offerings that outshine the competition.
- Benchmark against standards: You can benchmark your performance against your competitors, allowing you to gauge how well you’re doing in comparison. This can be particularly helpful for setting goals and tracking progress.
Competitor analysis is not just about keeping an eye on your rivals; it’s about gathering actionable data that can guide your business strategy, drive growth, and help you stay ahead in a competitive market. It’s an essential practice for businesses of all sizes and industries.
What are the types of competitor analysis?
There are multiple ways a business can proceed with competitor analysis, depending on the depth of analysis and the specific objectives of a business. Here are 12 types of competitor analysis:
- Direct competitor analysis: Examining businesses like yours within your industry.
- An example of direct competitors are Harley Davidson and Yamaha.
- Indirect competitor analysis: Looking at businesses serving a similar audience or need, despite differences in products.
- An example of indirect competitors are KFC (primarily serving fast food chicken) and Subway (primarily serving fast food sandwiches).
- Product-based analysis: Comparing the features, quality, and pricing of products in your category.
- Market share analysis: Assessing how much of the market each competitor controls.
- SWOT analysis: Evaluating competitors’ SWOT (strengths, weaknesses, opportunities, and threats).
- Customer analysis: Understanding who your competitors’ customers are and what they like.
- Online presence analysis: Checking how well your competitors perform online, including their website, social media, and customer reviews.
- Pricing strategy analysis: Studying how your competitors set their prices and offer discounts.
- Marketing and advertising analysis: Analyzing how your competitors market their products or services.
- Financial analysis: Assessing the financial health and stability of larger competitors.
- Innovation and R&D analysis: Examining your competitors’ efforts in developing new products or services.
- Market trend analysis: Observing industry trends and how competitors adapt to them.
When should you do a competitor analysis?
There are multiple instances in your business’ lifespan where you might consider competitor analysis. Regardless of the size of your business, we have listed just a few times you might need to up your analysis.
- Entering the market as a startup
- Planning your annual or quarterly strategies
- Launching a new product or services
- Beginning a new marketing campaign
- Considering pricing adjustments to products or services
- Planning to expand your business into new territories
- Annual or quarterly reviews
- Throughout economic changes or industry changes
- Updated regulations or market changes
- When customers feedback or are dissatisfied
In essence, competitor analysis should be a continuous process, but it’s especially important at key decision-making junctures in your business. It helps you make informed choices, adapt to changing market conditions, and stay ahead in a competitive environment.
How to conduct a competitor analysis
As you’re looking to improve your competitive analysis, we have put together this step-by-step guide on how you can start:
1. Identify competitors within your industry
Start by making a list of both direct and indirect competitors. Direct competitors offer similar products or services, while indirect competitors cater to the same target audience with slightly different offerings.
2. Gather the important information
Collect data on the important aspects of your competitors. This can include:
Their products and services, any online presence or marketing strategy, alongside their target audience.
3. Carry out a SWOT analysis
Carry out a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) for each competitor. This helps you visually understand their position in the market.
4. Benchmark your metrics against competitors
Compare your business metrics with the newly found metrics of your competitors.
5. Analyze any key trends
Stay updated with industry trends and monitor how your competitors are adapting to them.
6. Identify any product or market gaps
Pinpoint areas where your competitors are lacking or where they could improve. These gaps can present opportunities for your business to excel and stand out.
7. Develop new strategies
Based on the insights gathered, create strategies that capitalize on your competitors’ weaknesses and take advantage of your strengths.
8. Ensure you monitor on an ongoing basis
Regularly monitor your competitors to stay updated with changes in their strategies, customers, and market share.
9. Seek feedback from your customers
Gather feedback from your own customers regarding their experiences with your competitors. Understand what they like and dislike about your competitors’ products or services.
Competitor analysis is an iterative process that requires attention to detail and a commitment to staying informed about your competitive landscape. By consistently conducting competitor analysis, you can make informed decisions, adapt to market changes, and position your business for success.
What are your next steps after competitive analysis?
After conducting a thorough competitive analysis, the next steps involve translating your findings into actionable strategies. This can include basic refining of your product or service, adjusting your pricing strategy, improving your marketing tactics, or enhancing customer service.
Signing up to a financial forecasting tool like Brixx once you’ve completed your competitive analysis can be an excellent way to project your business model and keep track of benchmarks and financial figures over time. This will help in the future when you begin updating your competitive analysis, allowing easy comparison between your past and present situation. Sign up for a free trial today.
Competitive analysis example
In this example, we will show two bakeries which are indirect competitors of each other, due to their products and services being slightly different.
- Bakery business: The Sweet Treats Bakery
- Competitor: Swan Delights Bakery
1. Products and services
- The Sweet Treats Bakery: Creates in a wide range of cupcakes, cookies, and cakes.
- Swan Delights Bakery: Offers a variety of bread, pastries, and sandwiches, with a limited selection of cakes.
2. Pricing of each business
- The Sweet Treats Bakery: Competitive pricing with cupcakes ranging from $2.50 to $4.50 each.
- Swan Delights Bakery: Prices for bread and pastries are lower but don’t directly compete in the custom cake market.
3. Presence online
- The Sweet Treats Bakery: Active on Facebook and Instagram, posting daily updates with mouth-watering images of their creations. Positive customer reviews on Yelp.
- Swan Delights Bakery: Has a basic website with product listings but limited social media presence. Mixed customer reviews on Yelp.
4. Their target market
- The Sweet Treats Bakery: Primarily targets families and individuals looking for celebration cakes and treats.
- Swan Delights Bakery: Focuses on providing fresh bread and pastries to local residents.
5. Strengths and weaknesses
- The Sweet Treats Bakery: Known for creative cake designs and engaging social media presence. May have limited product diversity.
- Swan Delights Bakery: Offers fresh bread, lower prices, but lacks the cake variety of The Sweet Treats Bakery.
6. Potential issues
- The Sweet Treats Bakery: Possible threat from emerging bakeries offering similar products with innovative marketing strategies.
- Swan Delights Bakery: Competition from larger chain bakeries and supermarkets with competitive pricing.
This simplified competitive analysis provides The Sweet Treats Bakery with a snapshot of how they compare to one of their competitors, Swan Delights Bakery. It highlights areas where they excel, such as cake variety and online presence, and areas where they can improve, such as diversifying their product offerings and monitoring emerging competitors.
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