What is a competitive analysis and what is its purpose?
Competitive analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.
A competitive analysis helps you size up your competition by identifying their strengths and weaknesses. In order to know how receptive the market is to your business and what works or does not work, you have to understand how similar businesses are functioning.
Aim to run a SWOT analysis annually. It helps inform your break-even analysis and keeps tabs on the competitive landscape. You can anticipate problems and make continuous improvements to your business. Should you seek funding, you’ll want to include an updated SWOT analysis in your proposed business plan.
What are the steps of competitive analysis?
Step 1 – Select 7-10 competitors.
Step 2 – Describe each competitor.
Step 3 – Determine competitor types : direct, indirect or tertiary competitor.
Step 4 – Identify competitors online presence.
Step 5 – Determine competitive advantage and offerings.
Step 6 – Understand how your competitors market their products.
Step 7 – Conduct a SWOT analysis.
How to conduct competitive analysis
1. Select 7–10 competitors
To identify relevant competitors to include in your analysis, start with searches on Google, Amazon, and Alexa around your product and business idea. You want a mix of competitors that:
- Sell similar types of products
- Have a similar business premise
- Market to similar and slightly different audience demographics
- Are both new to the marketplace and more experienced
To put together a list of diverse competitors that will give you a good look at the competitive landscape that’s not too small and not too large, it’s a good idea to stick with a group of seven to 10 relevant competitors.
2. Describe each competitor
As you collect data on this group of competitors, keep it organized within a table or spreadsheet that can easily be shared and updated over time. Within this document, you’ll compare and contrast competitors based on different criteria such as:
- Price range
- Product offerings
- Social media engagement
- Content used for lead generation
- First-time visitor offers
- Other traits that are worth comparing
3. Determine competitor types
Starting with your list of competitors, begin your spreadsheet by categorizing each one as a primary or secondary competitor. This will help you better determine how they’ll relate to your business.
- Direct competitors, or primary competitors, to your business that sell a similar product to a similar audience. Example: Nike and Adidas are primary competitors.
- Indirect competitors are secondary competitions that offer a high-end or low-end version of your product to a different audience. Example: Victoria’s Secret and Walmart are secondary competitors.
- Tertiary competitors are related brands that may market to the same audience but don’t sell the same products as you or directly compete with you in any way. They may be potential partners or future competitors if they choose to expand their business. Example: Gatorade and Under Armour.
4. Identify your competitors’ positioning
Positioning is the most persuasive marketing tool for a business. Good positioning helps you connect with a target audience and keeps them around longer. It also determines your messaging, values, and overall business strategy.
This is exactly why understanding your competitors positioning is so important. You can learn how to separate yourself and build a favorable reputation in your customers’ eyes. Differentiation also helps increase brand awareness and justify your prices, which impacts your bottom line.
Analyze these key channels to determine positioning and messaging:
- Social media
- Press releases
- Website copy
- Events
- Interviews
- Product copy
When identifying your competitors’ positioning, ask yourself the following questions:
- What story do they express to customers?
- How do they position their products?
- What’s their company description?
- How do they describe their unique value proposition?
Understand how competitors interact with their followers, customers, employees, partners, and shareholders. If you can pinpoint their communication framework, you’ll be able to position yourself differently and set yourself apart from competitors.
5. Determine competitive advantage and offerings
Once you understand your competitors’ messaging, take a look at their competitive advantage and offering. Most companies are founded on a competitive advantage or some criteria toward developing their competitive advantage.
For example, a fashion retailer’s competitive advantage may be high-quality, reasonably priced products and expedited shipping services. An online educator may have 20 years of experience teaching and working in their specific industry. Unique selling propositions like these are not easy to replicate and can drive brand name recognition for a business.
Take time to look at your competitors’ goods and services and compare them to your own. Read online reviews to see why customers choose their company. It could be that they offer similar products at a lower price or have a focus on sustainability. Either way, you’ll want to learn their competitive advantage and figure out how you can offer something better.
6. Understand how your competitors market their products
Marketing is the secret to the most successful ecommerce stores. A good offering is the cost of entry, but marketing takes you to the top. Unfortunately, most businesses fail to undertake a review of their competitors’ marketing. They assume that everyone is on Instagram, running Facebook ads, and optimizing their site for search.
And a lot of them are. But understanding how your competitors market their products takes a different perspective. You want to find out what offers they are promoting, how they are building and managing their contact lists, and how they are distributing content online.
Along with the research you’re doing through software and tools, it’s a good idea to get hands-on with your competitive research, too. Assume the role of a potential customer and check out what your competitors are doing in the marketing department.
You can do this by:
- Signing up for their newsletters
- Subscribing to their blogs
- Following them on social media
- Abandoning a product in the shopping cart
- Purchasing a product
As you execute these activities, be sure to document your findings with notes on each tactic you see. By studying their approaches to cart abandonment and looking at how they deliver support via social media (and beyond), you can spot interesting approaches your competition is using to attract more customers and to drive sales.
7. Conduct a SWOT analysis
Consider conducting a SWOT analysis to accompany the data you collect. It’s a competitive analysis framework that lists your company’s strengths, weaknesses, opportunities, and threats. It leans into your competitors’ strengths and compares them to your business to define areas of improvement.
Strengths and weaknesses focus on the present. They are elements you control and can change over time, including:
- Reputation
- Product offering
- Partnerships
- Intellectual property
- Number of employees
- Market share
- Assets
Opportunities and threats are outside your control. You can plan for changes but can’t influence these elements. They include:
- Competitors’ products
- The economy
- Consumer trends
- Regulation
- Market size
- Market demand
Competitive analysis tools
Best competitor analysis tools :
- Quick Search.
- BuiltWith.
- WooRank.
- Google AdWords Keyword Planner.
- SEMrush.
- SpyFu.
- Owletter.
- SimilarWeb.
Competitive analysis in business plan
When you’re writing the business plan, you’ll write the competitor analysis section in the form of several paragraphs.
The first paragraph will outline the competitive environment, telling your readers who your proposed business’s competitors are, how much of the market they control and any other relevant details about the competition.
The second and following paragraphs will detail your competitive advantage, explaining why and how your company will be able to compete with these competitors and establish yourself as a successful business.
Remember, you don’t have to go into exhaustive detail here, but you do need to persuade the reader of your business plan that you are knowledgeable about the competition and that you have a clear, definitive plan that will enable your new business to successfully compete.