Understanding Competitive Analysis and How to Do It

Staying ahead of the competition is a top priority this this fierce competitive market. For small businesses understanding what your competitors are doing can make the difference between success and failure. This is where conducting competitive analysis becomes crucial. It's a strategic approach that involves researching and evaluating your competitors to gain insights into their strengths, weaknesses, and overall market position.

Competitive analysis is more than just keeping an eye on your rivals; it's about leveraging the information you gather to make informed business decisions. By understanding your competitors' strategies, you can identify market trends, refine your offerings, and ultimately carve out a unique position for your business. In this blog, we'll dive deep into what competitive analysis is and provide a step-by-step guide on how to effectively conduct one for your small business.

Whether you're a startup looking to disrupt the market or an established business aiming to maintain your edge, mastering competitive analysis is essential. Let's explore what it entails and how you can implement it to stay ahead.

What is Competitive Analysis?

Competitive analysis involves systematically researching your competitors to understand their strategies, strengths, weaknesses, and market positions. This process helps businesses identify opportunities and threats in the market, enabling them to make strategic decisions that can lead to a competitive advantage.

Key Points to Plan Your Competitive Analysis

1. Identify Your Competitors
2. Gather Information
3. Analyze Their Strategies
4. Perform a SWOT Analysis
5. Benchmark Your Business
6. Monitor and Update
7. Utilize Competitive Analysis Tools

1. Identify Your Competitors

The initial stage of conducting a competitive analysis involves identifying your competitors. This includes both direct competitors (businesses offering similar products or services) and indirect competitors (those fulfilling the same customer needs in different ways).

2. Gather Information

Once you have a list of competitors, the next step is to gather relevant information about them. This involves gathering information about their products, pricing, marketing strategies, customer feedback, and other relevant details. Use various sources like their websites, social media profiles, press releases, and industry reports.

3. Analyze Their Strategies

With the information gathered, analyze your competitors' strategies. Look at their marketing tactics, sales approaches, customer service practices, and any unique features they offer. Understanding these strategies can help you identify what works well and what doesn't, providing insights for your own business approach.

4. Perform a SWOT Analysis

A SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a useful framework for evaluating your competitors. Determine their strengths and weaknesses, along with the opportunities and threats they encounter. This analysis helps you understand where you stand in comparison and how you can leverage this information.

5. Benchmark Your Business

Benchmarking involves comparing your business against your competitors to identify areas for improvement. Examine key performance indicators (KPIs) like market share, customer satisfaction, and financial performance. This comparison helps you set realistic goals and develop strategies to outperform your competition.

6. Monitor and Update

Competitive analysis is not a one-time activity. Regularly monitor your competitors to stay updated on their strategies and market developments. This ongoing process ensures that you can quickly adapt to changes and maintain your competitive edge.

7. Utilize Competitive Analysis Tools

Several tools can streamline the competitive analysis process, providing detailed insights into your competitors' online activities and performance. Tools like SEMrush, Ahrefs, SimilarWeb, and SpyFu can help you analyze SEO strategies, keyword rankings, traffic sources, and more.

Types of Competitor Analysis Framework:

Each framework provides a different lens through which to view competitors, offering a comprehensive understanding of the competitive landscape. Find out which one resonates most with your strategy:

1. SWOT Analysis
2. Porter's Five Forces
3. Competitor Profile Matrix (CPM)
4. Benchmarking
5. Perceptual Mapping
6. BCG Matrix
7. Strategic Group Analysis
8. Value Chain Analysis
9. PEST Analysis
10. Growth-Share Matrix

1. SWOT Analysis

• Strengths: Identify the internal strengths of your competitor.
• Weaknesses: Explore the weaknesses they possess.
• Opportunities: Look for external opportunities they can capitalize on.
• Threats: Analyze potential threats that could impact them.

2. Porter's Five Forces

This framework evaluates the competitive forces within an industry:

• Threat of New Entrants: How easy is it for new competitors to enter the market?
• Bargaining Power of Suppliers: How much power do suppliers have over pricing and quality?
• Bargaining Power of Buyers: How much power do customers have?
• Threat of Substitutes: Are there alternative products that can replace what your competitor offers?
• Industry Rivalry: What is the level of competition among existing players?

3. Competitor Profile Matrix (CPM)

The CPM helps evaluate competitors by comparing critical success factors (CSFs):

• Key areas: Product quality, market share, customer service, etc.
• Each factor is weighted based on its importance, and competitors are scored on each factor.

4. Benchmarking

This involves comparing specific business processes and performance metrics to industry best practices or competitors:

• Types of benchmarking: Performance, process, strategic, and functional benchmarking.

5. Perceptual Mapping

This framework visually plots competitors based on certain dimensions (e.g., price vs. quality), helping to identify how competitors are positioned in the market and where gaps exist.

6. BCG Matrix

• Stars: High market growth, high market share.
• Cash Cows: Low market growth, high market share.
• Question Marks: High market growth, low market share.
• Dogs: Low market growth, low market share.

7. Strategic Group Analysis

This framework groups companies within the same industry that follow similar business models or strategies. You can analyze:

• Market positioning
• Target customers
• Product offerings

8. Value Chain Analysis

Analyzes competitors' activities that create value, from product development to after-sales services, identifying where they gain competitive advantages.

9. PEST Analysis

This framework analyzes external macro-environmental factors affecting competitors:

• Political: Regulatory changes and government policies.
• Economic: Market conditions, currency fluctuations.
• Social: Consumer behavior, demographic changes.
• Technological: Innovations impacting the industry.

10. Growth-Share Matrix

This framework evaluates a competitor's product portfolio in terms of market growth and share, helping to identify strategic priorities based on product strength.

Conclusion

In today's competitive business environment, understanding and analyzing your competitors is crucial for success. Competitive analysis equips you with the knowledge needed to make informed decisions, identify opportunities, and develop strategies that give you a competitive edge. By following the steps outlined in this blog, you can effectively conduct competitive analysis and position your small business for long-term growth and success.

Remember, competitive analysis is an ongoing process. Regularly update your information, monitor market trends, and stay agile to adapt to changes. With a thorough and strategic approach to competitive analysis, your business can thrive in even the most competitive markets.