Market analysis is the process of gathering information about the industry, your potential customers, and your competitors. Your goal in doing market research is to determine if there's a market for your products and learn about your ideal customers and check out the competition. You need all this information to make informed decisions for your business.
In this article, our focus is competitive analysis. It's the process of identifying the leaders in your industry and learning their strengths and weaknesses compared to yours. As a small business owner investing a significant amount of money, time, and energy to build and grow your company, doing a competitor analysis can help you overcome potential barriers to entry and identify strategies you can use to stay competitive.
What Is a Competitive Analysis?
Competitive analysis refers to the process of learning about your competitors. It involves researching their products, sales, and marketing strategies. It's a way to study your competitors' strengths and weaknesses compared to yours. You can gain insight into what's working for them, who their customers are, and how you can differentiate your business from theirs.
Your goal in doing a competitive analysis is to create marketing strategies that are better than your competitors. If you need one, you can easily find competitive analysis templates online.
Why Do You Need to Do a Competitive Analysis?
Conducting competitive research can provide you with valuable information on the competitive landscape in your industry. And you can use the data to improve your business strategies. Here are some benefits of competitive analysis:
- Learning how your competition operates helps you identify potential opportunities to surpass them.
- Watching your competitors helps you keep track of trends in the industry. For example, a trend for cellphone companies at the moment is wireless earbuds.
- Looking through your competitors' reviews can help you develop a product that addresses issues brought up by customers.
- Competitive analysis helps you identify what your competitors are doing right. For example, if you're a small business competing against large corporations, it's sometimes beneficial to copy what your competitors are doing right.
- Competitive analysis helps you find market gaps that your competitors are not serving. In this instance, you can increase your market reach by looking for untapped markets.
- Studying your competition provides you with a benchmark you can use to measure your own growth.
5 Steps to Conducting a Competitive Analysis
Spending hours researching your competitors is probably not at the top of your list of fun things to do. But your business will surely thank you for all the insights you'll learn. In the following sections, we'll discuss the steps of conducting a competitive analysis.
1. Know Your Competition
To get started with your competitive analysis, make a list of your direct and indirect competitors. Your direct competitors are businesses that offer similar products or services and cater to the same demographics as your target market in the same area. Companies that provide an alternative product or offer a similar product but serve a different audience are your indirect competitors.
Make sure you look at these businesses closely and categorize them correctly. The focus of the competitive analysis is on your direct competitors. But it's good to know who your indirect competitors are as well, as they could shift and become your direct competitor while you're not looking. This is also why it's recommended that you do a periodic competitive analysis.
2. Gather Information About Your Competitors
Once you've identified who your direct competitors are, your next step is to gather information about them. Start your research on the following:
- Products or services: Collect data on your competitors' product lines or services. If you can afford it, buy some products and try them yourself. Are they low-cost or a high-end provider? Examine the quality, and take note of features you like or dislike.
- Pricing: How are your competitors' products or services priced? Do they offer any discounts? Do their prices vary for each distribution channel or target market?
- Branding: Analyze your competitors' websites, newsletters, and marketing ads. Follow them on social media or visit them at trade shows. How are they positioning themselves in the market? Why do people like them? Is it a specific product or service, or do they have an effective marketing strategy?
- Market share: The company that generates the most sales in the industry for a particular product may define the standards or influence perception regarding that product. For example, cellphones operating on Android had a global market share of about 72% in January 2021. Calculate your competitors' market share using the following formula:
In this section of your analysis, evaluate your company compared to your competitors. Identify your competitive advantage. Is it your location, a specific product, or your prices? How can you differentiate your business from your competitors? Can you improve on the products or services they offer?
3. Examine Your Competitors' Marketing Strategies and Results
You can gauge your competitors' marketing efforts primarily from their website. Take note of the following: Do they have a blog for content marketing? Are they publishing whitepapers or case studies? Do they employ marketers? Examine the quantity and quality of their ads and published materials.
While you're there, check how their readers respond to their content. Note the topics that get more engagement and if the comments are mostly negative, positive, or mixed. You should also look at their social media presence to see if that's part of their marketing strategy. Checking your competitors' online presence and the level of engagement they receive helps you determine if spending time, money, and effort doing the same can help your business.
A definitive way to check if your competitors' marketing strategies are working is to do a sales analysis. For this, you'll want to see what their sales process looks like and what and how many distribution channels they're utilizing. Are they profitable? Do they have multiple locations? Do they sell through their website, as well? Are they expanding or scaling down?
4. Perform a Competitor SWOT Analysis
The strength, weakness, opportunity, and threat (SWOT) analysis framework is used to evaluate a company's competitive position. It's a great analysis tool you can use to ascertain how you stand compared to other businesses. Using the framework to examine your competitors helps you identify their weak areas and market gaps. Also, if you know your competitors' strengths, you can adapt your strategy to counter their strong points.
Try to cover as many as you can of the following aspects of business in your analysis:
- Online presence
- Customer experience
- Sales strategy
- Pricing strategy
- Marketing strategy
- Content strategy
Here are a few questions to guide you:
- Where does this competitor excel? Can you identify a feature — location, product, marketing — that gives them an advantage?
- What features in their product or customer experience need improvement?
- What aspects are they neglecting? For example, pricing, marketing, or online presence.
- What can you do better? What opportunities are they missing that you can take advantage of?
Identify Your Competitive Position in the Market
The point of examining how your competitors operate is to learn if you can stay competitive in the industry, market, and location where you want to start or if you need to expand your business. Take the data from your analysis and establish your unique value proposition — your competitive advantage.
It's good to know your competitors' weak points but it's not a sustainable way to grow your business. You can compete by offering low prices but that will only work for so long until another company sells lower-priced products. This is why you should cultivate a unique selling point that differentiates you from other companies and appeals to your target audience.
Think about what value you offer. What can you add to your new product or service to make customers choose you and pay you more for it? Did you discover a new market in your analysis? How can you appeal to them to widen your market base? Your goal in establishing your unique selling point is to center your messaging and branding on your strength and advantage.
Stay Competitive With Skynova's Accounting for Small Business
The growth of your business depends on your unique offerings. Studying your competitors not only helps you know who they are and what they bring to the market but it also helps you identify areas where you can surpass them.
Save time tracking your income and expenses. With Skynova's accounting software for small businesses, you can easily do your own bookkeeping as a small business owner. Keep accurate records of your income, expenses, sales tax, and more. Generate financial reports to compare your company's profits whenever you need them, as well.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always do more research and consult with a professional to ensure that you're making the best decisions for your business.