Business takes place in a highly competitive, volatile environment, so it is important to understand the competition. Sometimes companies compete by offering a unique product orservice. However, other times, it's not the actual product or service that creates competition, but rather the way in which it is sold. For example, people have been buying music recordings for much of the last century. But ever since music became available on the Internet (whether streaming or downloads), companies have been competing to find the best way to deliver what is essentially a commodity.
If you can solve a problem or provide a radically new experience for customers, you have a better shot at competing. The process of identifying and researching your business competitors is called a competitive analysis, which this article discusses in more detail.
Competitive Analysis: Getting Started
The competitive analysis has several different moving parts, so take your time. The following questions will help you get started:
- Who are your five nearest direct competitors?
- Who are your indirect competitors?
- Is their business growing, steady, or declining?
- What can you learn from their operations or from their advertising?
- What are their strengths and weaknesses?
- How does their product or service differ from yours?
Start a file on each of your competitors including advertising, promotional materials, and pricing strategies. Review these files periodically, determining how often they advertise, sponsor promotions, and offer sales. Study the copy used in the advertising and promotional materials, and their sales strategies.
What to Address in Your Competitor Analysis
- Names of competitors - List all of your current competitors and research any that might enter the market during the next year.
- Summary of each competitor's products - This should include location, quality, advertising, staff, distribution methods, promotional strategies, customer service, etc.
- Competitors' strengths and weaknesses - List their strengths and weaknesses from the customer's viewpoint. State how you will capitalize on their weaknesses and meet the challenges represented by their strengths.
- Competitors' strategies and objectives - This information might be easily obtained by getting a copy of their annual report. It might take analysis of many information sources to understand competitors' strategies and objectives.
- Strength of the market - Is the market for your product growing sufficiently so there are enough customers for all market players?
Ideas for Gathering Competitive Information
- Internet - The internet is a powerful tool for finding information on a variety of topics.
- Personal visits - If possible, visit your competitors' locations. Observe how employees interact with customers. What do their premises look like? How are their products displayed and priced?
- Talk to customers - Your sales staff is in regular contact with customers and prospects, as is your competition. Learn what your customers and prospects are saying about your competitors.
- Competitors' ads - Analyze competitors' ads to learn about their target audience, market position, product features, and benefits, prices, etc.
- Speeches or presentations - Attend speeches or presentations made by representatives of your competitors.
- Trade show displays - View your competitor's display from a potential customer's point of view. What does their display say about the company? Observing which specific trade shows or industry events competitors attend provides information on their marketing strategy and target market.
- Written sources - General business publications; marketing and advertising publications; local newspapers and business journals; industry and trade association publications; industry research and surveys; computer databases (available at many public libraries).
Get Legal Help with Your Competitive Analysis
Scoping out the competition is essential when starting a business, since you want your business to stand out and offer something truly unique. If you have any legal questions pertaining to the process of conducting a competitive analysis, you should consider calling a business and commercial law attorney licensed in your state. See the Marketing and Advertising Laws section for additional resources.