Understanding your competitors is an important part of running a successful business. If you don’t understand their strengths and weaknesses, you will find it harder to win customers from them and develop a competitive advantage. You need to understand what your current and potential customers think of your competitors and why they would come to you rather than them. You need to understand how to differentiate your business from your competitors.
Who are your Competitors?
Competitors may not just be those in the same business as you. You may need to cast your net wider to those who may be providing competitive products in the future. Look at the businesses out there who are starting to move into your market arena. They may be developing products or services that could compete with yours. Examine where your staff are coming from or moving to. Are they competitors?
How to Carry out a Competitor Analysis
There are three aspects to carrying out a competitor analysis:
Step 1 Understand how attractive your competitor is to the market
Step 2 Analyse their competitive position
Step 3 Examine exactly how big a risk they are to you
Firstly assess the attractiveness of your competitors to the market. For each of your major competitors, you will have to ask yourself the following questions:
- What is their level of profitability?
- How stable are they financially and what is their credit rating?
- What level of brand recognition do they have in the market place? Are they working on developing their brand in the future?
- How big are they now and how fast are they growing?
- What appetite do they have for growth?
- What geographic opportunities are they faced with (for example are they located in a great place for passing trade?)
- What level of internal knowledge or expertise about the business do they have?
Having considered these questions, you then need to rate each competitor a High, Medium, or Low for market attractiveness.
The next step is to consider the competitive position for each of your competitors. Again, you will need to ask yourself the following questions about each of your competitors:
- How good are their products or services, compared to yours and the rest of the market?
- What is their sales team like? Are they motivated, do they have appropriate experience, are they loyal or do they have a high staff turnover?
- What is their pricing strategy? Are they likely to cut prices just to get a deal or is their focus more on the quality of the products or services they provide?
Again, you will rate each competitor as High, Medium or Low in this area.
Finally, looking at all of your competitors, rank them in order of risk to your business. Look back at sales you have won or lost from them recently. Do you see any trends? Is one competitor constantly chasing your clients?
Then, with the research done, you will need to plot each competitor on a graph. The vertical axis is the market attractiveness ranking, and the horizontal axis is the market competitiveness ranking. The size of the circle depicts the level of risk to you.
Review your results
Once your competitors are plotted, look at the results. The closer towards the top right corner of the graph, the more of a risk they are likely to be. Look at what you can do about those competitors in that area. What can you do in your business to challenge them? It can help to plot yourself on this graph to understand how you may be seen by your competitors
The final piece of the exercise is to regularly review this analysis. Competitors will always be making changes, and new ones come along, so you need to ensure you are coming back to this on a regular basis, at least once a year.
Here is a quiz to check your understanding of Competitor Analysis. Don’t forget to download your Certificate on completion.