This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.

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Competitor analysis (also known as competitive analysis) is the process of learning about the businesses that are competing for the customers you wish to target. It is automatically performed as part of market analysis and can be performed on its own. Here is a quick guide in steps on how to carry out competitor analysis:

1. Define your goal
2. Identify your competitors
3. Collect relevant data and information
   • The business itself
   • Customer base
   • Products and services
   • Sales and marketing strategy
4. Analyse the data

Why carry out competitor analysis?

As the old saying goes, ‘Pick your battles’. The first implication of this saying is that you should always try to fight battles you can win. The second implication is that you should only fight battles that are worth winning.

Applying this logic to a business context, you only want to go up against competitors if you have solid grounds to believe that you can at least hold your own against them. You don’t necessarily have to take their customers. You could, for example, work to expand the market as a whole. Ensure that your competitors will not subsequently be able to steal away the customers you’ve won.

Also be confident that a market segment is worth winning in the first place. Be sure that it will make a suitable return on the investment you make to win it. This does not mean that the market needs to be big. Very small markets can have very high profit margins. Consider the risk of a disruptor taking away those profit margins.

In short, competitive analysis is a process of exploration. It allows you to decide whether or not a market is for you at all. If it is for you then your competitive analysis will help you to find your own, unique, space in it.

How to carry out competitor analysis

There is no hard-and-fast definition of how to carry out a competitor analysis. The following four-step method is suitable for most SMEs. You can adapt it to suit your situation if necessary.

Define your goal

A full competitor analysis is essential before entering a new market. Often, a partial competitor analysis is all that’s required to fulfil a goal. For example, let’s say you’re planning on launching a new marketing campaign. You might decide to do a competitive analysis that focuses purely on marketing strategies, nothing else.

Identify your competitors

Your direct competitors are businesses that target the same customers as you and offer the same product or service as you. Your indirect competitors are people who either target the same customers as you or offer the same product or service as you. Ideally, your competitive analysis will include at least one direct competitor and one of each type of indirect competitor.

It may need to include more to get a thorough understanding of the competition you face. For example, your market area may include corporations, SMEs and micropreneurs. If so, have at least one representative of each type of company in each category. Add in an extra one in the most similar category to create a top-ten list.

Include enough competitors to get meaningful results. At the same time, keep your list as small as possible so that your competitive analysis stays manageable. Keeping your list on the smaller side also helps to control your costs and the time involved. As a rule of thumb, look at at least five and no more than ten competitors.

Collect relevant data

A full competitor analysis covers the business itself, its products or services, its customer base, and its sales and marketing strategy.

Here is a quick guide to what to assess in each section.

The business itself

• How long has it been in business?

• What is its business structure (e.g. PLC, Ltd, partnership etc.)?

• Who are its owners or management team?

• How many physical locations does it have and where are they?

• How many employees does it have and where are they?

• What is their hiring pattern and what do ex-employees have to say about them?

• Do they have any well-known employees?

• What are their gross revenue and net profit?

• Do they have any other sources of funding?

• Do they have any noteworthy assets (e.g. intellectual property)?

Most of this information is fairly easy to find on public websites. In fact, you may find all of it on the company’s website.

Products or services

• What are the specific features of your competitor’s products or services?

• What is their process for creating their product or service? How does their supply-chain work, what technology do they use, how much work is outsourced and to whom?

• How is their product or service distributed? If they ship items, look closely at their delivery options and costs.

• What is your competitor’s pricing model and range? Look closely at how it is structured. Do they offer discounts to certain types of customers?

• Are there any bonuses offered with purchases? Do they offer discounts on complementary products?

Again, most of this information is likely to be easily available on public websites or the company’s website. The area that might be a challenge is finding out their process for creating their product or service. However, there is a growing trend of companies being highly transparent about this. It’s becoming increasingly important for them to show that they are acting ethically and sustainably.

Customer base

• Who are their customers and where are they located?

• Do they have a presence on customer review sites? If so, what is the feedback?

• What does social media say about them?

These days, social media can provide invaluable insights into a company’s customer base. At a minimum, it should give you a good idea of who its customers are and where they are. Often it tells you a lot about how the customers feel about the company. In particular, you should be able to judge the level of brand enthusiasm and loyalty.

Sales and marketing strategy

• What specific channels is your competitor using for sales and marketing? For online sales and marketing, identify which particular websites and platforms they are using most often.

• Where are they spending on paid advertising? This includes working with influencers.

• Do they have an affiliate programme? If so, what are its terms and who is using it?

• How strong is their organic SEO?

• How well are they performing at content marketing? This includes their own website and social media plus any collaborations e.g. guest posts.

• What is their sales process? If there are variations, analyse each variation. Determine which variation is intended for which customer segment.

• What is their customer-service process? This can be a major selling point.

• Do they have any unique strengths or weaknesses?

Analyse your data

You can get competitor analysis tools to help with this. Fundamentally, however, deciding what your data means for you really comes down to human judgement.

Useful resources for carrying out competitor analysis

• If the thought of carrying out competitive analysis is making you nervous, you can get tips to boost your confidence here.

• You can find all kinds of useful (and interesting) statistics at the Office for National Statistics’ website. This is totally free and can be a great source of competitive intelligence.

• Get information on competitors from the Companies House website here.