A competitive analysis is essential for, well, seeing how you stack up against the competition and devising a strategy for making your business stand out. You’ll learn from their strengths and discover how to avoid the same weaknesses.
So, why do you need one, and how do you conduct one? Here’s what to do.
You may notice that certain similar brands are succeeding in the market, while you’re falling behind. Or, you’re doing fine but could be doing better. Either way, you need to differentiate yourself in a competitive market, and that starts by seeing how others are faring.
A competitive analysis can be especially helpful when:
• You’re first launching a new business
• Your brand needs an overhaul
• Sales seem to be lagging
It’s essential to stay a step ahead of your competitors in any of these and other scenarios, and first and foremost, that involves knowing where they stand. You can’t just poke around on their website — you need to delve deeper, by gathering as much information as you can and learning everything there is to know about your competition.
The Porter’s Five Forces model is one way of conducting a competitive analysis. Developed by Michael Porter of Harvard Business school around four decades ago, the principles together stand as a way of assessing your business’s ability to thrive next to similar organizations in your industry. These five forces are:
1. Competition and rivalry
What’s the current state of the market? Who is the existing competition, and what do they offer? How do they compare with you?
2. Power of suppliers
This factor assesses the number of suppliers and potential suppliers you have, how unique the services they offer is and ultimately how much control they have over your businesses. If you have many to choose from, you’re in a better position, because you can easily switch to another if your original supplier’s prices become too high.
3. Power of consumers
What kind of effect does your customer have on your product and businesses? Do customers typically buy in bulk or place single orders at a time? Customers have more power when you depend on individual ones for profitability.
4. Threat of new entrants
If new competitors can easily join the market, you’re in a worse position. If you work in a more industry that’s difficult to enter, you’re in a better position. Some factors affecting this threat include regulations, how specialized the industry is and the cost of starting operations in the industry.
5. Threat of substitutes
For some products and services, it may be easy to switch and substitute one for the other. Others may have fewer substitutes. This force is important because your pricing often depends on a customer’s ability to turn to a substitute.
First, you must assess who your customers are and where you fit in. What demand are you trying to meet? What kind of people need and would be willing to pay for your product or services? This is an important first step because before you can consider how you stack up next to the competition, you need to know what purpose your organization serves and what your customers are looking for.
Think about the main competition, accounting for businesses of all sizes that currently exist as well as emerging organizations. Even if you think a small newcomer won’t pose a threat, it still very well might. Remember that competitors are those that offer similar products or services that are targeting your customer base.
This can be as easy as performing a Google search and taking note of the top entries. You should keep an actual list of competitors and bold or highlight the ones that pose the biggest challenge to you.
Learn everything you can about the competition, compiling the information in an Excel doc or Google spreadsheet. Pay attention to materials such as:
Pay attention to the frequency with which the competitor offers or contributes to certain aspects of the business. For instance, notice how often they Tweet or offer special deals.
You should also spend some time analyzing your competitor's SEO. You want to see how they’re handlining keywords, H tags, links, page structure and other features because you want to rank highly in customer search results. Knowing the SEO structure of highly-ranked competitors will help you figure out how to devise your own strategy.
Taking into account all the information and content you’ve gathered, examine your competitor’s strengths and weaknesses. What are they doing well? You can borrow similar strategies for your own brand. What could they be doing better? This will help you avoid potential pitfalls, as well as find opportunities to give your product or service a leg up. For example, if a competitor is setting a price for a certain product too high, you can exploit this weakness by setting your price lower.
If you haven’t performed a SWOT (strengths, weaknesses, opportunities and threats) analysis of your business, now is the time to do so. This will help you anticipate how you’ll fare in the market.
Analyzing your own strengths and weaknesses and compare them to those of your competitors. Be as honest with yourself as possible, attempting to consider them from a customer’s perspective. What might make someone choose your brand over the competition or vice versa? This will help you identify areas where you can improve, as well as opportunities to perform better than other businesses targeting your market.
Your research is meaningless unless you act on it. After you’ve reviewed the information you’ve collected and identified areas for improvement as well as opportunities, devise a strategy for using the data. Consider not only how you can replicate competitors’ success but how you might develop unique solutions to outperform them. This involves using different strategies, not just the tried and true ones of your competitors.
A competitive analysis is not a one-time deal. After you put your new strategies into effect, gather feedback and analyze customer responses to see how your efforts have paid off. You’ll likely find both strengths and weaknesses within your strategy and want to create opportunities to patch up holes and perform even better the next time around.
Industries differ, but most markets are constantly changing, with some models becoming outdated and players frequently entering while others leave. So, part of your brand’s strategy needs to be routinely conducting a competitive analysis. It’s up to you to figure out the nature of your market and how often you need to perform one — some markets are more volatile than others — but you should develop a timeline consistent with its realities.
Target customers change, too — both in terms of who they are and their preferences — so you need to account for their evolution, too. A strategy that’s successful today may no longer be viable in three months, due to a new competitor offering a similar but better model or customers preferring a different style.
A competitive analysis is an important aspect of your business’s overall strategy. Whether you’re a newcomer to the market, looking to refresh your brand or just trying to stay viable in a changing world, it’s vital to know where you stand and how you could improve — especially considering the abundance of options and alternatives available to consumers these days.
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