Competitor analysis is a critical part of your marketing plan, as it gives you a 360-degree assessment of your current and prospective competitors’ strengths and weaknesses. A good competitor analysis is both offensive and defensive — it should help you identify healthy opportunities as well as potential threats.
How do I identify competitors?
The best way to identify your competitors depends on the type of business you’re running, but if you’re planning to open a physical shopfront, there are some universal rules that every business owner can start with.
- First, take a walk through the local neighbourhood.
- Identify any potential competitors and visit them during business hours. Assess what they do well and where they could improve.
- Search online for small businesses in the area. Yelp is a great resource — people post reviews of local businesses, so you can get a sense of what’s popular and what pitfalls you should be avoiding.
It’s also important that you get a sense of some of the bigger retailers in the area because they often have market share, and you need to have a strategy to compete with them. Head to the local shopping centre to get a sense of what sort of people shop there and what kind of services retailers offer. Often these businesses can undercut smaller retailers on price, so ask yourself, ‘Can I offer my customers a unique product or a level of service that allows me to compete with these big retailers?’
It’s also crucial that you consider competitors operating in the online space. Will they take business from you? Or, perhaps, can you learn something from them? Consider whether your business can thrive online, too. Square for E-Commerce can help you get online quickly and easily leverage affordable and scalable platforms from one of our many integrating website builders.
What to look at when analysing competitors
There are six key areas areas of analysis you can use to get to know the business landscape you’re operating in:
Take a look at your competitor’s history. Start by finding out when it was founded and research other significant dates in the life of the business. Find out who founded the business and who owns it now. If the founder is still at the helm, see what you can learn about their experience. It’s also helpful to gain better insight into what types of organisational structure and corporate governance your competitor uses. Ask yourself at every point, ‘Was this a strength or a weakness? And how could I implement similar success strategies or improve on less successful ones in my own business?’
It can be tough to find specific financial numbers for a competitor because while publicly listed companies are obliged to release annual reports every year, that’s not the case for small businesses. So, you might have to get creative. Speak to suppliers and other people in the industry — they might not know exactly how much money your competitor is making, but they probably have a general sense of how the business is faring.
It’s also a good idea to collect as much data as possible about broad economic trends within your industry, which helps you assess the overall strength of the economy and, more specifically, your sector. Australia’s Treasury Department also publishes valuable information which you might find helpful.
Take time to research the products your competitors offer: What are their best sellers? How many different products do they offer? How often do they bring out new products? Are they missing any key products? This information is just as important for your business as it is to those with whom you’re competing. Gear your analysis around finding out what it is consumers want and whether your competitors are servicing their needs. If they are, then look for opportunities in areas where they’re not meeting the demand.
It’s also important to have one eye on the future. Find out whether they’re developing new products. This might be as easy as going into the business and having a chat with someone working there about what the managers have in store for the future. It might also be worth checking out the IP Australia website, where you can search the patent database.
Analyse your competitors’ market share and customer base and find out what they’re doing to attract and hold their customers. Do they, for example, offer discounts or promotions to loyal customers? Speak to their customers and find out whether they’re loyal to their brands and — if they are — find out why. These are the things you might want to try to replicate in your own business. It’s also helpful to get an idea of how much they’re spending on their marketing. You don’t necessarily need to match it, but it at least gives you a sense of what you’re up against.
By looking into your competitors’ facilities, you can get a better idea of just how big they are. If they have, for example, ten other locations they’re going to have more capital to play with, which might make them tougher to compete with. Conversely, it might mean they are spread too thinly and can’t focus on each specific business closely enough. This is what your research needs to uncover.
Find out who their major suppliers are. Are they, for example, shipping products in from overseas or are they sourcing locally? Speak with people in the industry, former employees, and people and companies you think they’re likely to partner with, and then piece all the information together to form a better understanding of how these businesses operate behind the scenes.
Spend some time analysing their online presence as well. Do they sell goods exclusively through their website or are they also available on other online stores? Speak with these stores and find out more about the costs associated with selling products that way.
It’s crucial you get a sense of the people your competitors employ. This could include statistics such as the number of employees they’ve hired, how much they’re paying them and what kind of award agreements they offer. You should also gather as much qualitative information as you can. Find out, for example, what staff morale is like. Do employees generally think these are good companies to work for? If so, why? It might also be helpful to learn about the management style they employ and if it gets the best out of the workers. All this information should help you attract, manage and retain your own employees.
This is part three of our Business Plan series. Part two was about cash flow statements and analysis, and part one was about business operations.