How to Perform a Competitive Analysis

How to Perform a Competitive Analysis

Competitive analysis is the process of examining your competitors’ strengths and weaknesses in order to improve your business plan. It is a crucial step for both startups and existing companies. It is important to understand who your competitors are, what they offer, and how they are different from you.

This information will help you determine how to position your business and products relative to theirs, as well as identify opportunities for improvement. In this blog post, we will discuss the steps involved in performing a competitive analysis and provide some tips on how to get the most out of it.

Benefits of Performing a Competitive Analysis

There are several benefits of performing a competitive analysis, including:

  • Improved decision making: a competitive analysis can help you make better decisions about your business plan by providing insights into your competitors’ strategies.
  • Greater understanding of the market: competitive analysis can give you a better understanding of the market landscape and how your business fits into it.
  • identification of opportunities and threats: by understanding your competitors’ strengths and weaknesses, you can identify opportunities and threats for your business.
  • improved planning: a competitive analysis can help you plan more effectively by providing insights into the competitive landscape.
  • Identification of competitive advantages: learn what unique value proposition sets you apart from the rest of your industry
  • Benchmarking: find out where your performance stands in relation to the other guys

What to Include in Your Competitive Analysis

You can get very in-depth or be very concise depending on the reason for the analysis. You’ll want to identify 5-10 of your main competitors for the analysis. At the very least, you will need to cover:

  • Description of the target market
  • Current and projected market share and sales figures
  • Main differentiators or competitive advantages
  • Strengths
  • Weaknesses
  • Price point comparisons

This should be sufficient for things like marketing projects or the main portion of a business plan. Sometimes, though, you are going to want to be a bit more in-depth, like in the appendices section of your business plan.

A fully comprehensive report may include the following for each competitor (some sections intertwine):

  • Company profile: number of employees, date operations began, mergers or acquisitions
  • Funding: any major investors and the company’s funding status, including any available financial figures and forecasts
  • Products and services: details on products and services, strengths and weaknesses of offerings, location and distribution channels, pricing strategies
  • Customers: what the company’s target customer looks like demographically and psychographically
  • Customer experience: gather all available customer feedback to get an idea of how the company and its products are used and perceived
  • Brand awareness and marketing: current marketing efforts and how well recognizable the brand is
  • Resources and positioning: what assets the brand owns or has access to and what its core competencies are
  • Company strengths and weaknesses
  • Technology: what technological advancements the company is capitalizing on in its operations
  • Supply chain data

How to Select Competitors to Analyze

You will want to start with direct competitors, which are companies that solve the same problem as you do with the same solutions. For example, Pizza Hut is a direct competitor of Papa John’s.

Geographical competitors are companies that operate in the same geographical area as you but don’t necessarily offer the same products or services. An example would be a local Italian restaurant competing with a national chain like Olive Garden. The national chain would be a more indirect competitor.

You should also consider companies that are similar in size to you. If you’re a small startup, a large corporation is not going to be a direct competitor. But if you’re a mid-sized company, they may be indirect competitors because they offer products or services that could be seen as substitutes for yours.

You’ll want to avoid including companies that are not really competitors. This could be a mistake because it can make your company look bad in comparison or give you false information. It could also just be a waste of time.

So, how do you know if a company is a true competitor? There are a few key indicators:

  • They offer a similar product or service to the same target market
  • They are roughly the same size as you
  • They operate in the same geographical area as you

Five Forces

Once you have your list of competitors, it’s time to start the analysis. Michael Porter, a professor at Harvard Business School, created a framework called “Porter’s Five Forces” that is used in competitive analyses to identify the five main forces that affect competition. These five forces are:

– Threat of new entrants

– Bargaining power of buyers

– Bargaining power of suppliers

– Threat of substitute products or services

– Rivalry among existing competitors

We’ll go into more detail on each later, but for now, let’s just get an overview of what they are.

Threat of New Entrants: This is how easy it is for new companies to enter your market. If it’s easy, then you have more competition and it’s harder to compete. If it’s hard, then you have less competition.

Bargaining Power of Buyers: This is how much power your customers have. If they have a lot of power, then they can force prices down or demand better quality. If they don’t have a lot of power, then you can charge higher prices or offer lower quality without losing customers.

Bargaining Power of Suppliers: This is how much power your suppliers have. If they have a lot of power, then they can force prices up or demand better terms. If they don’t have a lot of power, then you can get lower prices or better terms.

Threat of Substitute Products or Services: This is how easy it is for your customers to find a different product or service that meets their needs. If there are lots of substitutes, then you have more competition and it’s harder to compete. If there are few substitutes, then you have less competition and it’s easier to compete.

Rivalry Among Existing Competitors: This is how intense the competition is between the companies already in your market. If the rivalry is high, then you have less opportunity to gain market share. If the rivalry is low, then you have more opportunity to gain market share.

Now that we’ve gone over what each force is, let’s talk about how to actually use them in your competitive analysis.

The first step is to look at each force and decide if it’s high, low, or medium. To do this, you’ll want to think about things like entry barriers, customer switching costs, the number of suppliers, the number of buyers, the degree of differentiation, and the intensity of rivalry.

Once you’ve done that, you’ll want to plot each competitor on a five forces diagram. This will help you visualize the competition and see which companies are in a strong or weak position.

Finally, you’ll want to use the five forces framework to come up with strategies for how to compete in your market. We’ll go over some examples of this later.

Porter’s Five Forces is a great tool to use in a competitive analysis, but it’s not the only tool. Another popular one is SWOT Analysis, but that is a subject for another article.

Conclusion

In conclusion, a competitive analysis is a great way to understand the competition and find strategies to compete effectively. To do a competitive analysis, you’ll want to gather information on your competitors, plot them on a five forces diagram, and use the five forces framework to come up with strategies for how to compete. Thanks for reading!

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