Business Competitive Analysis: A Definition and Guide

Business Competitive Analysis: A Definition and Guide
A competitive analysis helps you uncover the insights you need to create your own marketing strategies. Here's how to get started.
by Square Apr 01, 2021 — 6 min read
Business Competitive Analysis: A Definition and Guide

A competitive analysis — also called a competitor analysis — is used to understand your competitors’ strategies, in turn opening up new opportunities for your own business. The information you uncover can be used to inform your marketing strategy, design new product lines and select useful business tools— all of which help distinguish you from your competition.

Before you dive into any research, clearly defined goals are needed. A competitive analysis should aim to:

How to do a competitive analysis

Here are the four steps every business can cover in their competitive analysis to make sure no stone is left unturned:

1. Identify your competitors

You can’t prepare a competitive analysis if you don’t know who your competitors are — all of them. The key is to put yourself in the shoes of your target customer.

A Google search for your business type and location is how many customers will find you initially, but their search terms may differ. Let’s say you’re starting a retail business selling children’s clothes in Canberra. A potential customer could search with a number of phrases like “Canberra kids clothing shop”, “children’s clothing shop in Canberra” and “Canberra children’s clothes.”

By coming up with as many searches as possible and seeing which businesses appear in the results, you’ll get an idea of what your target customer sees when they do the same. Take note of household name brands and companies that frequent the top three results in your competitive analysis, as these are the ones most likely to win business.

Some businesses simply don’t show up in searches, usually because they haven’t listed their business with Google. If they have a brick-and-mortar presence though, they still have the chance to drive footfall from passersby and through word of mouth promotion. Even without your own physical store, your business is in competition with those out on the street. Take a walk around your town and local area to see what’s about to build into your competitive analysis.

You can remove the guesswork of this stage entirely by simply asking your customers where else they shop for similar products or services. Focus groups, questionnaires, surveys or a simple chat across the counter are all legitimate ways of finding out. You’ll also get first-hand information on how they feel your business compares to competitors’.

The final thing to do for your competitive analysis is combine all the information you’ve collected and create a list of the top 10 competitors. Even though there may be many more, a shorter list is more practical to work with.

2. Analyse your competitors

Armed with your top 10 competitor list, you can now do a deep dive into the background, location, products or services, marketing, sales and workforce of each.

Business background

What important dates and events has each competitor seen since inception? The key areas of focus are ownership, financials and organisational structure. How have these affected where the company is today?

Facilities and location

Explore the location of each competitor’s office or store as well as the appearance of their online presence. Location is a key factor in their strengths and weaknesses as it affects foot traffic, logistics and accessibility.

If you have a brick-and-mortar business, location is vital to your success. There’s a fine balance to tread. Moving into an area that’s over-saturated with similar businesses creates higher competition but an area where there’s no competition at all may be too isolated.

Location also affects the ease with which you can distribute your own products and services as well as the supplies you receive. Researching your rivals’ business operations can provide a sneak peak into the facilities you need, as well as pitfalls you want to avoid.

Products

Product-based businesses should look at competitors to see what they offer, the breadth of their product lines and whether they’re missing anything crucial when preparing a competitive analysis. Industry news can reveal whether they’re developing products and if they have patents and licenses pending.

Pricing

It’s tricky to find out what your competitors’ pricing strategy looks like in detail, but there are a few ways you can build a top line understanding:

A clearer idea of pricing trends and anomalies puts you in good stead to understand where your own price points should fall in your competitive analysis. You’ll probably notice that many smaller businesses add higher markups to their products, whereas large businesses swallow a bigger percentage of the difference.

Marketing

Which channels are your competitors using to reach out to customers and what messages are they using? You might want to break down your competitors’ marketing tactics so that they’re easier to analyse. The key areas are:

It’s not easy to get a true picture of the marketing metrics your competitors’ are using, or how (and if) they’re achieving them. What you should hope to gain from this particular analysis are insights into potential strengths and weaknesses that your business can benefit from. The number of followers a competitor has on social media, the ease with which you can buy through their website, the usefulness of the content in their emails and the strength of their branding are all opportunities for you to improve your own approach through competitive analysis.

Sales

Understanding competitors’ sales strategies can help you make strategic decisions about where, what and how you make your own sales. As with their marketing though, you’ll find that a lot of information isn’t publicly available.

Using news resources, competitors’ websites and by following the same sales process your customers would, you should still be able to answer some of these key questions:

Personnel

Staff keep your business running, so they’re an important part of your competitive analysis. As a small business taking extra care over costs, the number of people your competitors employ, what their hours are, how much they get paid and what types of contracts they have are big takeaways that can inform how you might build a strong team on a budget.

Glassdoor is a useful resource, not only for finding out the above, but for seeing what people have to say about your competitors as an employer. You may find recurring themes that help you tailor your own approach to leadership and employee management.

3. Segment your competition

Once you’ve conducted extensive research on each of your listed competitors in the competitive analysis, it’s time to categorise them into primary, secondary and tertiary groups.

4. Determine business opportunities

With all the information you’ve gathered through the competitive analysis, you’re now ready to think tactically about how you will become a worthy rival. The questions to take a deep dive into are:

Whatever the size of your business, a competitive analysis can be used daily and in your long-term planning to grow faster and manage operations efficiently. Fledgling business owners can model their business plan accordingly and enter the market on a strong foot. Whilst seasoned entrepreneurs can re-evaluate priorities and gauge how their business has grown over time.

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