How to Conduct a Successful Competitive Analysis and Develop Winning Strategies
The success of any business largely depends on its ability to stay ahead of the curve and outperform its competitors. One of the best ways to stand out from your competition is to know your competitors inside and out. This is where competitive analysis comes in.
A competitive analysis is the process of gathering and analyzing information about the strengths and weaknesses of your competitors. It involves deep-seated research into your rivals—their customers, products and services, marketing and sales strategies, etc. Armed with this information, you can develop winning strategies to outsmart your competitors and take your business to the next level.
In this guide, we will provide you with practical tips and tools to conduct an efficient and effective competitive analysis and create a roadmap for developing a successful business strategy.
What is a Competitive Analysis
A competitive analysis is the process of identifying and analyzing your competitors in order to make informed decisions that help your business succeed in a highly competitive marketplace.
Conducting a competitive analysis is a crucial process that involves identifying and evaluating the strengths and weaknesses of your business rivals—the companies you directly compete with. By analyzing your competitors’ products, services, marketing strategies, strengths, and weaknesses, you can assess their position in the market relative to yours. This information is helpful as it allows you to identify potential opportunities or threats that could impact your business.
Conducting a competitive analysis also helps you understand your competitive landscape—it gives you a big-picture idea of what you’re up against. This allows you to make informed decisions, and identify ways to maintain a competitive advantage (which is a big deal, since 57% of companies state that gaining a competitive advantage is one of the top 3 priorities.) You might use the information gathered from the analysis to improve your products or services, marketing strategies, sales tactics, customer experience, or all of the above, to better meet the needs of your target audience.
The Importance of a Competitive Analysis
You may have heard of the adage, “Keep your friends close and your enemies closer.” In the world of small business, this saying rings especially true, particularly when it comes to strategic planning and decision-making. Conducting a competitor analysis is a critical part of running a successful business. By analyzing your competitors’ strengths and weaknesses, you can identify opportunities in the market and stay ahead of the curve.
A comprehensive competitive analysis can enable businesses to identify market trends, anticipate competitor moves, and capitalize on opportunities. By knowing what your competitors are doing, you can determine what works well and what doesn’t. This information can guide you on how to create and promote your products or services better than your competitors do. Plus, you can learn from their mistakes and avoid making similar ones.
By conducting a competitive analysis, you can determine the best strategies to avoid the competition and stand out in your market. Whether you’re a small business just starting or an established business, the importance of a competitor analysis cannot be underestimated. With the right tools and insights, you can stay ahead of the competition, grow your business, and outmatch your competitors.
Ultimately, conducting a competitor analysis can be the difference between successful, strategic decision-making, and missed opportunities in a crowded market. Whether you’ve recently started a small business or you’ve been running a local business for years, conducting a competitive analysis is a step you can’t afford to miss.
Benefits of Conducting a Competitive Analysis
Conducting a competitive analysis can benefit your business in several ways. Let’s take a look at some of the main advantages.
1. Identify potential threats and opportunities in the market.
Conducting a competitive analysis is an effective way to identify potential threats and opportunities in the market. By analyzing the strengths and weaknesses of their competitors, businesses can gain valuable insights that help them stay ahead of the competition.
For example, let’s say that a local coffee shop wants to expand its menu to include more baked goods. They conduct a competitive analysis and discover that one of their competitors has recently started offering gluten-free options that have been very popular. This information gives the coffee shop an opportunity to not only add gluten-free options to their menu but also to potentially market them as a way to stand out from their competitors.
Contrastingly, a competitive analysis might also reveal potential threats in the market. For instance, a local boutique might find that a larger, more established chain store has recently opened in the same area and is attracting potential customers away from their business. Armed with this knowledge, the boutique could respond with a targeted marketing campaign or by offering unique items not found at the chain store to remain competitive.
Whether you identify threats, opportunities, or both, consider it a major win for your business. You’ll be able to use this information to shape your strategies, optimize your products or services, improve customer service, and win more business than your rivals.
2. Gain insights into competitor strategies, products, and pricing.
Conducting a competitive analysis will give you valuable insights into the strategies, products, and pricing of your direct competitors. This gives you the ability to make informed decisions based on data and fact-based insights and allows you to identify unique selling propositions and competitive advantages that resonate with your audience.
For example, taking a closer look at your competitors’ products or services—and maybe even reverse-engineering their solutions—can inspire your own innovation and product development. By analyzing the subtle differences and similarities between your competition’s products and your own, you’ll gain valuable insights that will allow you to develop unique and superior products that cater to your audiences’ specific needs.
Moreover, 60% of consumers consider pricing as the very first criterion in their buying decision. By digging into your competitors’ pricing models, you can determine whether you are charging too much or too little for your products or services, and make adjustments accordingly. This can help you maximize your profitability while still remaining competitive.
3. Enhance product differentiation and positioning.
By analyzing the strategies and offerings of competitors, you can identify gaps in the market and tailor your offering so it stands out.
For example, in the home services industry, a small handyman business may conduct a competitive analysis to compare its offerings to other businesses in the area. They may find that their competitors focus primarily on basic handyman services like repairs and maintenance. In response, this business can differentiate itself by offering additional services like interior design consultations or home automation installations.
For small businesses in particular, competitive analysis is important because they often have limited resources and must make strategic decisions about how to focus their efforts. By understanding their competition, they can make informed decisions about how to allocate resources most effectively and differentiate themselves in the market. This can lead to increased success and growth in the long term.
How to Do a Competitor Analysis
Ready to give it a try? Here are six steps to follow when conducting a competitor analysis.
1. Define your objectives and scope of analysis.
Before diving into the analysis of your competitors, it is critical to define your objectives and the scope of your analysis. This step involves identifying the purpose of the competitor analysis and outlining the parameters of your research. Ensure that you focus your analysis on what matters most to your business.
2. Identify your direct and indirect competitors.
The second step is to identify your direct and indirect competitors. This step requires that you research and identify all the businesses within your industry that provide similar products or services. Direct competitors are those businesses that offer the same products or services as your company, while indirect competitors can be businesses that cater to the same customer base or offer substitute products.
3. Analyze competitor strengths, weaknesses, and strategies.
The third step is analyzing the strengths, weaknesses, and strategies of your competitors. This step requires that you conduct research to understand the factors that make your competitors successful or vulnerable in the market. Some tactics that are effective in analyzing competitors’ strengths and weaknesses include SWOT analysis, competitor benchmarking, and Porter’s Five Forces analysis.
4. Draw actionable insights and develop strategies.
After analyzing your competitors, the fourth step is to draw actionable insights and develop strategies. This step involves identifying areas that your business can effectively compete and developing strategies that can help you gain a competitive advantage. One excellent example of a strategy that can be employed is differentiation. By offering unique features and benefits, a business can create a significant competitive advantage.
5. Monitor competitor changes.
The fifth step is to monitor changes in your competitors’ strategies, strengths, and weaknesses. This process entails continually monitoring information sources about the market, competition, and customers to identify new and emerging trends in your industry. For example, this can involve monitoring social media, reading industry reports, or attending conferences.
6. Repeat the analysis.
Finally, conducting a competitive analysis is an ongoing process. As such, the sixth step is to repeat the competitor analysis regularly to ensure that you remain up-to-date with the changing dynamics of your industry. A competitor analysis should be performed periodically, such as once per quarter, to keep your business abreast of any changes that may impact its strategy.
6 Elements Your Competitive Analysis Should Include
1. SWOT analysis
A SWOT analysis is a widely used framework to assess the strengths, weaknesses, opportunities, and threats of a business. It helps companies to structure their thinking about their competitive position and understand where they stand in the market. SWOT stands for:
- Strengths: Areas where your business excels. It could be proprietary technology, a strong brand identity, or something else.
- Weaknesses: Areas where the company needs to improve. It could be a lack of resources, outdated technology, or poor customer perception.
- Opportunities: External factors that the company can take advantage of. This could be an untapped market or a gap in the customer experience that the business can fill.
- Threats: External factors that can negatively impact the business. It could be new competitors entering the market, changing customer preferences, or economic factors outside your control.
A SWOT analysis is an essential element of a comprehensive competitive analysis because it helps you develop a clear understanding of your company’s position in the market. It helps identify areas where you can grow, compete effectively, and improve your competitive edge.
2. Competitor profiles
A competitor profile focuses on gathering and analyzing information about your competitors. It helps you understand their strengths and weaknesses, their strategies, and their market positioning. It involves identifying who your competitors are and researching their products or services, pricing, sales, marketing, and customer reviews.
Competitor profiles help you:
- Identify areas to avoid or compete directly with your competitors
- Learn from competitor’s successful practices and avoid their weaknesses
- Create a benchmark for your business and goals for future growth.
To build a competitive profile, you can use public sources like competitor websites, social media, and online directories along with other market research tools. It will give you a comprehensive view of the marketplace and enable you to make well-informed decisions.
3. Customer Analysis
A customer analysis focuses on understanding your target customers, their needs, and their behavior towards your product or service. It involves identifying customer demographics, psychographics, and behavior—who they are, what they want, and how they behave.
A customer analysis helps you:
- Understand your customers’ needs and pain points
- Identify opportunities to differentiate your business to meet customer needs
- Develop and improve customer retention strategies, marketing, and sales tactics
To conduct a customer analysis, you can use surveys, gather customer data from the website, social media demographics, and market research tools. This will help you build a better understanding of who your customers are and how you can better serve them.
4. Unique selling proposition
A unique selling proposition (USP) is the factor that sets your business apart from your competitors. It’s the unique value that you offer to your customers that your competitors don’t. A USP can be a product or service feature, a marketing campaign, or a customer experience that’s distinct and compelling.
Having a strong USP is essential for several reasons. Firstly, it makes your business more memorable and easier to differentiate. Secondly, it helps you focus on your strengths and prioritize your marketing efforts. Finally, it gives your customers a reason to choose you over your competitors.
To identify your USP, consider what makes your business unique. Think about your products, services, customer experience, marketing strategy, and company culture. Once you identify your USP, highlight it in your marketing campaigns and use it to guide your business strategy.
5. Sales and marketing strategies
Sales and marketing strategies are critical components of a competitive analysis. They include your pricing, advertising, sales processes, and customer engagement methods. By studying your competitors’ sales and marketing strategies, you can identify opportunities for improvement and develop winning strategies that help you outperform them in the market.
Your sales and marketing strategies should be developed based on your target audience and your competitors’ strategies. You should analyze your competitors’ pricing, promotions, advertising, and sales channels, and understand their strengths and weaknesses. Then, you can refine your own sales and marketing strategies to improve your offerings.
It’s important to note that your sales and marketing strategies should be based on data-driven insights. You should use analytics tools to track your performance metrics, such as conversion rates, website traffic, and sales revenue. By analyzing these metrics, you can identify opportunities for improvement and adjust your strategies accordingly.
6. Pricing analysis
Pricing analysis is a crucial element of a competitive analysis. It involves studying your competitors’ prices and understanding how to price your products or services effectively. Pricing your products too high or too low can lead to lost sales and revenue.
To conduct a pricing analysis, start by researching your competitors’ prices and understanding what value they provide to their customers. Assess their pricing strategies and their target audience. Consider factors such as quality, convenience, and brand recognition when determining pricing.
You should also consider your own production and marketing costs, as well as the perceived value of your products or services. By understanding these factors, you can develop a comprehensive pricing strategy that positions your business competitively.
Competitor Analysis Template
Need a helping hand conducting your competitive analysis? Use our free template.
Once You Know Your Competition, Get to Know Your Audience Better with Podium
Now that you have a clear understanding of your competition, it’s time to get to know your audience better. You need to understand what makes them tick, what they need, and what they’re looking for in a product or service.
Podium offers several tools and products to help you gain deeper insights into your target audience. One of the most powerful features of Podium is its ability to help you collect and manage customer reviews. By monitoring and responding to customer feedback, you can get a better understanding of what your audience likes and dislikes about your offerings and make the necessary changes to improve your business.
Podium also offers text marketing services, enabling you to communicate directly with your customers via SMS. By sending targeted messages to your audience, you can keep them informed about your latest offerings, promotions, and events. This allows you to stay top of mind and build stronger relationships with your customers.
Podium is a must-have tool for businesses looking to gain deeper insights into their customers. Ready to take your business to the next level? Start a free trial today.
FAQs
1. Is a SWOT analysis a competitive analysis?
No, a SWOT analysis is not a competitive analysis. It is a strategic management tool that helps businesses identify their strengths, weaknesses, opportunities, and threats. A competitive analysis, on the other hand, is focused specifically on identifying the strengths and weaknesses of your competitors, as well as the opportunities and threats they present to your business.
2. How do you do a good competitive analysis?
A good competitive analysis begins with identifying your competitors and then gathering information about them. This can include analyzing their strengths and weaknesses, understanding their pricing strategies, studying their marketing tactics, and researching their customer demographics. It is important to also analyze industry trends and market conditions to gain a comprehensive understanding of the competitive landscape. Ultimately, a good competitive analysis is one that provides actionable insights that can be used by your business to gain a competitive advantage.
3. What are some common mistakes to avoid when conducting a competitive analysis?
One common mistake is focusing too much on your own business and not enough on your competitors. Another mistake is not gathering enough information or relying on outdated or inaccurate data. It is also important to be objective when conducting a competitive analysis and not to let personal biases or emotions cloud your judgment. Finally, it is essential to use the insights gained from the analysis to inform your business strategy and make data-driven decisions.
4. What is the importance of conducting a competitive analysis?
Conducting a competitive analysis is important because it provides valuable insights into your business environment, helps identify potential threats and opportunities, and allows you to gain a competitive advantage. By understanding your competitors’ strengths and weaknesses, you can identify opportunities to differentiate your business and create a unique value proposition for your customers. Additionally, a competitive analysis can help you to stay ahead of industry trends and anticipate changes in the marketplace, positioning your business for long-term success.