Everyday there seems to be a new business popping up, each with their own innovative solution to an existing problem. Now customers have endless options of competing products or services to choose from, making it difficult for a business to have a sustainable competitive advantage.
Adding further complexity, not only must businesses consider direct competition, there are also indirect threats – when the threat comes from businesses who have adjacent verticals and separate industries.
This is why it’s important to identify and analyse your competitors. Understanding who your competitors are and what they are doing well and what they are doing poorly can help you to determine a winning strategy. Sometimes having competitors is a good thing, because it means there is an existing market ready to sell to – and who are likely frustrated by something the competition is not doing well.
The goal of a competitor analysis is to gather the necessary business intelligence to determine your unique selling proposition, and boosts your go-to-market strategy.
How do I do a Competitor Analysis?
To analyse your competition well, you need to know who they are, their target customer, their unique selling proposition, and their strengths and weaknesses. The process of a competitor analysis will help you to determine the business’ competitive advantage, and there are five steps as detailed below.
Step 1. Find your competitors
Competition can come in various shapes and sizes. As we highlighted before, direct competitors are businesses who are doing similar things to what you are doing, whereas indirect competitors target the same customers and aim to address the same problem by do it through different means. There are two types of indirect competitors: ones who have the same customer, and the ones who have the same solution.
For example, imagine you run a gym, a direct competitor could be another gym. However, an indirect competitor with the same customer could be at-home training apps, whilst an indirect competitor with the same solution could be diet programs.
Using the above framework from Myk Pono (adapted from Maksimava), you can easily evaluate businesses that are your direct competitors as well as businesses who could potentially move into your space. There are opportunities as well for your business to just as easily move into your competitors market. Both types of competitors are extremely valid to consider in the competitor analysis and all data should be collected and evaluated.
Step 2. Research your competitors
So, who are your competitors? Start with understanding how they started their business and the problem they are looking to solve for their customers. What is there unique selling proposition? What are their values? Who are their target market?
The next step is to evaluate why customers are using the product or service of that competitor. Are there any perks that come with using the business? Do they offer a freemium model, where people can use a base model for free and pay for upgrades? Or perhaps, 24/7 customer service is offered with no additional cost?
Check out their website and marketing collateral to understand their product and service offerings, company objectives and other relevant information. Conduct a review of their marketing and advertising campaigns to understand the strategy they are currently adopting to attract their customers. Other sources of information include online articles, press release statements, social media, etc.
The best way to get proper insight into this is to experience the product or service as a customer. For example, sign-up for free trials, visit the store, purchase and return products of retail stores. Doing this will give you a realistic understanding of the customer journey, and help to gauge the strengths and weaknesses of that experience.
Step 3. Identify competitor strengths
Identifying what your competitor is doing well might seem pointless, but that could not be further from the truth. What your competitors are doing well will give you insight into what your target market are interested in, and what keeps them coming back. Your competitors strengths can be adopted into your business as standard practice. For example, if your competitor is an online store that offers free returns which customers have revelled in as a benefit – because it enables to purchase items of expensive clothing without any risk – this may become something you incorporate into your own online store.
Your competitors strengths also act as boundaries for your business. You should never offer anything that would be unattractive to the customer that would deter them from switching to your product or service. For example, if your competitor is an online store that offers free shipping over $50, you would not choose to have free shipping on orders over $100.
Please note that this would be different if the pricing of the products were substantially different (e.g. if your competitors clothing price point started at $20 for one item of clothing whereas one item of clothing in your store started at $80). This is where the concept of relativity is important. Dan Ariely used the image below to demonstrate the concept of relativity in his book Predictably Irrational.
When looking at the two images, you may immediately judge the red circle on the left as being bigger than the one on the right. However, both red circles are actually the same size (trust us! We measured it). The red circle on the left seems large when compared to the surrounding smaller circles, whilst the one on the right seems smaller next to the large circles. This illusion helps to illustrate how important it is to consider your relative position against your competitors. This is why it is important to consider all competitors, as the more comprehensive your view is of the competitive landscape, the more effectively you can identify potential marketing opportunities.
Step 4. Identify competitor weaknesses
As with many things in life, when something doesn’t meet expectations, everyone knows about it pretty quickly – and that is no different in business. Bad reviews, missed opportunities or controversial opinions can make or break a business and these weaknesses become an opportunity for competitors.
What your competitors are not doing well can easily be turned into an opportunity for you to provide a useful solution for customers. These solutions do not always require state-of-the-art technology or complex infrastructure. A solution may be as simple as creating a more user-friendly checkout process, or flexibility in how people pay for your product or service. This can become a unique selling proposition for your business.
It is important to remember that competitor analysis is not used for determining your next offering, as that should be determined through customer feedback, and other useful data from your business intelligence. Rather a competitor analysis is used to inform your marketing strategy to position your business appropriately in the current market. You can change aspects of the user experience or customer journey but the product or service you offer should be established before this point.
Step 5. Rate competition
The last thing to do is to collate all the data on your competitors into a rating matrix to understand where they fall in comparison to one another. Rating competitors against critical factors will provide an overview of the competitive landscape. Factors competitors should be rated on are:
Your previous research would have helped you to answer most of these questions, however if you require further research (particular with the quality or service rankings), you can find what you need through Facebook reviews, Google reviews, blogs, and general social media.
The image below is how Planium Pro helps you to map out competitors.
The purpose of this analysis is to understand where your business stands in the market, and identify opportunities to differentiate yourself from the competition. The general consensus is that this process occurs quarterly or half-yearly as the market shifts so rapidly nowadays. Competitor analysis is a useful marketing tool for any business looking to evaluate the competitive landscape, and enter the market with their eyes wide open.
At the end of the day, a competitive analysis can help you identify ways to outperform your competition by understanding the customer and how best to help them. See how Planium Pro can help you and your business by signing up for a free trial.