A competitive landscape analysis — also called a competitor analysis — is a useful tool for business owners who want to better understand how they can gain a competitive advantage in their marketplace. It's a structured means of researching your competitors and identifying their strengths and weaknesses — and then using that information to drive your own business success.
You can use a competitor analysis when you're first conceptualizing a company to figure out if it's a viable business model (to determine what barriers to entry you might face, if the market is overcrowded, etc.). However, you can also use this tool once you've successfully established your company to make sure you keep up with the competition.
This article explains what a competitive landscape analysis is, why it's useful, and how to create your own competitor analysis.
What Is a Competitive Landscape Analysis?
Whatever product or service your business offers, the odds are that there is at least one other business (or many) offering the same product or service. To succeed, your business has to stand out from the crowd. A competitor analysis gives you the information you need to do just that. It consists of real-world data comparing your business to your competitors, which you can then analyze to stay ahead of industry changes.
A competitive analysis allows you to identify other key players in your industry (your competitors), and determine where those competitors are succeeding in attracting potential customers (thereby taking away from your valuable market share). It further provides fact-based information you can use to identify ways to increase your market share.
The Benefits of a Competitor Analysis
Creating a competitor analysis requires time and effort. Why bother taking a break from your daily business operations to complete this task? Here are the benefits you can expect as a result:
- Discover differences. Assessing competitors allows you to clearly discern and articulate how your business stands out from others in the field. For example, if you run an e-commerce boutique and find out that you offer free shipping while many of your competitors don't, this is a key differentiator worth highlighting.
- Improve targeting. You can then better highlight unique value propositions in your marketing and advertising material. Continuing the above example, you might create pay-per-click (PPC) internet ads to draw attention to your free shipping. You can even use your competitors' names as keywords — if a customer searches for your competitor (who doesn't offer free shipping), they are shown your ad (highlighting free shipping) and may opt to try your business.
- Develop a better business strategy. Long-term business success is a matter of staying ahead of the competition by adopting new trends and innovations before they do. For example, if you owned a brick-and-mortar clothing boutique and established an e-commerce online shop early in the internet age, you were able to seize valuable online market share before other fashion retailers caught up.
Creating a Competitive Analysis Framework
Are you convinced that your business could benefit from a competitor analysis? Here's how to carry one out.
Define Your Market Competition
Before you can analyze your competitors, you have to identify them. There are a few types of competitors. Here's an overview:
- Direct: These will be companies that sell products or services similar to your own and who compete for the same target audience (in terms of demographics, location, etc.).
- Indirect: These will be businesses that aren't necessarily direct competitors but could still take some of your market share.
- Replacement: These are disruptive businesses that could shake up your market.
- Tertiary: These are businesses that aren't currently in your space but could theoretically expand to enter your market.
Let's say you run a nail salon in Charlotte, North Carolina, for example. You could search "nail salons Charlotte" to come up with a list of direct competitors. You might further search a term like "manicure Charlotte" to identify some indirect competitors — for example, some spas also offer basic nail services.
What about replacement and tertiary competition? Continuing this example, a nail salon owner might be wary of businesses touting new products that make DIY manicures easier, like nail stickers. Finally, an example of tertiary competition might be a lash and brow bar if they decide to start doing nails, too.
Take your list of competitors and put them in a spreadsheet, taking care to differentiate what type of competitor they are. If you have a huge number of competitors, limit your list to the top 10. Here's what the start of your landscape analysis might look like:
|Betty's Nails, LLC
|Sweet Tips Nail Shop
|Sandy's Salon & Spa
Research the Competition
Once you have a list of your competitors, it's time to conduct more detailed market research for each one. For each competitor, examine key points that would make a difference to consumers, such as:
- Sales strategy
- Pricing strategy
- Marketing efforts
- Website content and search engine optimization (SEO)
- Customer service
- Discounts and deals
- Other relevant points depending on your industry (if you run an e-commerce boutique, shipping costs, etc.)
Now, your competitor landscape analysis template is growing:
|Other (add columns as needed)
|Betty's Nails, LLC
|Sweet Tips Nail Shop
|Sandy's Salon & Spa
You can then start inputting information based on your research.
Perform an Analysis
Finally, take your data above and analyze it. A SWOT analysis looks at each business's strengths, weaknesses, opportunities, and threats. When analyzing your competitors, get critical. Where do they excel? Where could they improve? Have they neglected any key areas? Finally, how do they stack up to your brand? Could they replace you? Get granular when it comes to the details.
Coming back to the above example template, let's say one of your competitors — Betty's Nails, LLC — has a huge social media following. This is their primary marketing method. What channels are they active on? How often do they post? What tone do they use? What purpose do they use social media for (e.g., showing products, sharing specials, information-sharing)? Do they interact with their followers? Do they cross-promote with other businesses or brands?
Use Your Newfound Competitive Intelligence
With questions like these, you start to identify your competitors' strengths and weaknesses. You can then use this information to inspire your own social media marketing strategy. For example, if Betty's Nails, LLC, doesn't cross-promote with other beauty-based businesses, that might be an avenue worth exploring. If you partner up with a lash artist who sends you their customers for nails and vice versa, for instance, you'll be able to improve your competitiveness and market position.
Stay on Top of the Latest Updates
A competitive landscape analysis isn't something you do once and never again. Aim to do at least one analysis annually. Ideally, you'll do one per quarter. This lets you keep track of the latest changes and see what new entrants to the market might be doing that could endanger your loyal customer base and poach customers from you.
Stay Ahead of the Competition and on Top of Your Finances With Skynova
The ultimate aim of any competitive landscape analysis is to find ways to make your business better. With this research and analysis, you'll get the information you need to stand out from the crowd so you can attract more customers, boost sales and profits, and promote growth.
As you implement new business initiatives based on your competitor analysis, you'll want to track your spending to ensure that you get a positive return on investment (ROI). For example, if you decide that your social media could use a boost and hire a social media marketer for your business, you want to be sure that you see a corresponding increase in customer engagement and sales.
That's where Skynova can help. Skynova's accounting software makes it easy to track income and expenses, giving you comprehensive oversight of your business financials in one place. We're dedicated to helping startups and small business owners like you find greater success in their target markets with straightforward money management.
Notice to the Reader
The content within this article is meant as a general guideline and may not apply to your specific business or situation. Always consult with a professional accountant when implementing new accounting tools or practices to ensure that you're meeting accounting standards.