“Always one step ahead of the competition”
You must have heard that phrase more than once. But how exactly can this be achieved?
Knowing what your competitors are doing – how do they perceive the market? Which tactics do they adhere to? Which language and design do they use? The answers to these questions will allow you to anticipate their steps and be one step ahead.
According to Conductor, 74% of marketers believe that competitive analysis is “important or very important,” and 26% admit that they are not very successful. And this means that right now you have a real chance to get ahead of your competitors, just better knowing them.
Competitive analysis is not SWOT analysis or simply knowing who is on the market. This is a comprehensive study of your competitors, covering business indicators, product analysis, and, most importantly, an assessment of their marketing.
What is in a competitive analysis?
Competitive analysis (or competitive research) is a strategic policy Research area specializing in the acquisition and examination of information about competing firms. It’s an important tactic to find out exactly what your business competitors are doing and what type of threat they pose to the future success of your business.
The concept of competitor analysis
As soon as the company enters the market, it immediately enters into competition with other players for the attention of consumers to the goods and services offered. There is no market without competition; it is a catalyst for change, an engine for the development of competing entities. The managers of the companies involved in the competition develop strategies for gaining market niches, and they do this not blindly, but based on the information they have about competitors and their offers. It is only possible to obtain such information through the analysis of competitors.
Thus, the analysis of competitors is an activity aimed at studying competing enterprises in order to determine their strengths and weaknesses in relation to them.
What is the purpose of competitive analysis?
If you are the owner or top manager of the company, then you do not need competitive analysis only if you are an absolute monopolist. All the rest are forced to gain their right to be in the market in the struggle.
Therefore, competitor analysis is needed, for example, with:
- Drawing up sales plans for various periods;
- Setting optimal prices for their goods or services;
- Determining the prospects of your own business with current trends in the market environment;
- Identifying your strengths and weaknesses compared to other companies.
Finding answers to the above questions is the purpose of conducting a study of competitors.
Competitor Analysis Objects
At the first stage, you need to find out – who are the competitors of your company and rank them by importance.
Competitors are direct and indirect. Direct competitors sell products similar to yours for the same target audience and use the same distribution channels and promotion methods. Indirect competitors also work with your target audience, but offer them a product or service with other consumer properties, in a different price category, through other distribution channels.
So, the first step in the competitive analysis is to compile a list of firms that are your direct and indirect competitors. Among the companies included in the list, we highlight the key competitors.
Key competitors are those that can play an important role in your market position. Your customers go to key competitors, or vice versa – customers come from them to you. Usually, these are companies with large market shares with pronounced positive or negative dynamics of their change, or companies offering a unique product or service. If you intend to increase sales of your old products, then direct competitors will be key, if you are planning to expand the range, you should pay increased attention to indirect competitors.
Kinds of competitors
We have different kinds of competitors, let quote the major competitors that exist:
Direct competitors: they are either aimed at the same audience with you, or have a similar product, or both at the same time;
Secondary competitors: offer a higher or lower price version of your product, or target a completely different audience (suppose you sell Rocket watches, then Rolex is your secondary competitor);
Tertiary competitors: related to products and services, as well as companies that may be beneficial for future partnerships(Suppose you sell jewelry, a tertiary competitor can sell gems).
Sources of information in competitor analysis
The study of competitors consists in the collection and systematization of all available information. Despite the great opportunities that the Internet provides, it is still impossible to conduct a qualitative analysis of competitors without leaving your office.
The main sources of competitor data are:
- Surveys of consumers included in the target audience – answers to several simple questions about the brands of products they know, preferences and criteria for their choice will give a lot of useful information
- Analytical articles and reviews on the market segment you are interested in – these materials often refer to enterprises that play the most significant role, as well as some information about them;
- Attending exhibitions, seminars and other business events – here your competitors can tell a lot of interesting things about themselves, provide their contacts;
- In-depth interviews with market experts – will provide high-quality information about your competitors, their strengths and weaknesses;
- Spyware marketing techniques – collecting information by subscribing to competitors’ mailings, calling their sales managers, launching a “mystery shopper” and the like;
- Research of search queries on the Internet – you can find out – on the websites of which companies the potential consumer, first of all, gets when searching for a particular product or service;
- Research of points of sale – a simple analysis of the placement of goods on the shelves of leading stores can give a good idea of the importance of a particular brand in the market.
Competitor Analysis – Key Areas
We have decided on the sources of information, now it is necessary to clarify – but what should we look for when conducting a competitive analysis? Obviously, the focus of a such study is selected or based on their goals. It is also possible to conduct a comprehensive competitive analysis, in which all aspects of the activities of competitors are studied. Analysts highlight the following elements of competitor research:
Analysis of competitors’ products:
- Main characteristics;
- Preconditions and opportunities for launching new or updated products on the market;
- Features of the competitor’s decisions on the appearance of the packaging of goods;
Competitor’s price analysis:
- Pricing methods;
- Pricing strategies;
- The ability to play with prices, taking into account the level of profitability;
Analysis of market communications of competitors:
- Personal policy;
- Supplies of raw materials;
- Interaction with retailers;
- Ways to influence buyers.
Analysis of the marketing strategy of competitors:
- Basis of sales policy and tools for its implementation;
- Main channels and logistic sales schemes;
- Availability of pre- and after-sales service and its quality;
- Quantitative indicators of sales.
Processing collected competitor data
After data collection, their processing begins, and through this, direct analysis of competitors is carried out. Marketers usually systematize data on four main groups of parameters that are part of the popular 4P marketing system – product (product), location, and everything connected with it (place), price (price), and product promotion (promotion). For ease of use, it is better to format the collected data in the form of tables in which the compared parameters are indicated in the rows and the competing companies in the columns. At the intersection of rows and columns, a rating is put down for each parameter – usually from 0 to 10.
Then, each parameter is assigned an assessment of the level of importance in order to emphasize individual competitive advantages and obtain a comprehensive assessment of the competitor’s work.
Such a presentation of information is quite enough to reveal your strengths and weaknesses in the 4P system compared to key competitors. If we add the influence of the external market environment to such secondary information, we get an excellent SWOT analysis, which will become the basis for developing the optimal competition strategy.
SWOT analysis is the most popular method of competitor analysis because of the simplicity and visibility of the presentation of results. The English abbreviation SWOT stands for: S trengths – strengths, W eaknesses – weaknesses, O pportunities – opportunities, T hreats – threats. After such a description, the structure of the presentation of data in this version of the competitive analysis becomes clear.
The strengths and weaknesses of the company are determined by comparing the values of the same parameters with competitors.
Example. The analysis of company “A” competitors showed that the profitability of production of a similar product in terms of consumer qualities is lower than the one of the key competitors – this is the strength of the company “A”.
Thus, the characteristics of the enterprise, providing a more favorable position in the market compared to competitors are strengths. And vice versa – internal factors that impede business growth and make products less competitive are called weaknesses.
Environmental factors are borne by companies in relation to which competitive analysis, opportunities, and threats are carried out. Opportunities allow you to increase sales and market share, and you need to use it, and threats can reduce the profitability of the business, then it should be eliminated.
Competitive Strategy Options
A study of competitors can be considered complete if, based on its results, a competitive position or strategy of behavior on the market is formed.
The strategy should answer the following questions:
- How to make full use of strengths?
- How to overcome or compensate for weaknesses?
- How to realize the available opportunities?
- How to eliminate threats?
Strategies developed or based on the results of competitive analysis can be:
- Offensive or proactive;
- Defensive or reactive.
An offensive strategy is aimed at improving the market position, increasing the share of your product or service on it. Usually, proactive strategies are applied to competitors losing their positions in order to take back the share they have lost. Reactive strategies are scenarios of reactions to the actions of a stronger competitor, counteracting his attempts to squeeze your company on the market.
How do you analyze competitors in practice?
If you are wondering, “How do you analyze competitors in practice?” Then you should definitely read this part. It includes 10 basic steps that must be taken when analyzing the competitive environment of the company.
Before moving on to a comparative analysis of competitors, conduct a series of preliminary work. Firstly, clearly identify your competitors. Secondly, determine the objectives of competitive analysis so as not to analyze the “extra” information that will not give an answer to the necessary questions. Thirdly, conduct a survey of consumers in the market to form an understanding of what ideas the target audience has about your product and competitors’ products, evaluate the level of knowledge and loyalty.
#1: Rate the overall level of intra-industry competition
The more intense the level of competition in the industry:
- the faster the market environment changes
- the more important mobility and quick response to change
- the higher the level of required costs, staff qualifications and product expectations
- the more difficult it is to find a free market niche and a successful competitive strategy
- the higher the risks of long-term profit decline
- the higher the level of development and saturation of the market
At the first stage of the competitive analysis, determine the number of players, the market growth rate, the dynamics of the appearance of product groups, and new products in the industry. Conclusions at this stage should be made regarding the intensity of competition, the prospects for toughening it, and forecasts of market changes for the next 3 years.
It is better to collect data on the given indicators for 3-5 years, but in the absence of such information, 1-2 years will be enough. Purpose: to clearly understand the trend and correctly make forecasts of the future market position.
#2: Build a map of competitors
A map of competitors will help to identify those players who are the leading companies in the market, determine the rules of the game in the industry, and can become an example of successful decisions and strategies.
What conclusions can be drawn from the information received? Make a profile for each competitor. Competitors with a high market share and high growth rates set the rules for playing the market. Competitors with negative or low growth rates can serve as a good source for business growth. High-growth competitors can talk about successful sales technics.
#3: Conduct a comparative analysis of the portfolio
Define a portfolio of competitors and compare it with the portfolio of your company. Be sure to mark the key business areas of each player (in the table the key business areas are pink cells):
Key business areas are product categories that provide the highest share of sales and share of profit.
Determine the bestsellers for each product category and prepare a comparative analysis of each competitor’s “hit” with your product. Be sure to check the key properties of the products.
It is more convenient to evaluate the properties on a 5-point scale, where 0 points – the absence of properties, and 5 points – the best offer on the market
The surest way to get a true assessment of the goods of your company and competitors is to interview consumers and conduct blind tests (without packaging and the ability to identify the goods with the manufacturer). The severity of properties is most conveniently represented as a “polygon of product characteristics”
#4: Carry out a comparative analysis of prices
Distribute all competitors by major price segments: low-price, mid-price, high-price, and premium segments.
Identify the extreme price boundaries of competitors and the main price range in which the competitor conducts his business: determine the lowest price, highest price, and average selling price.
#5: Conduct a comparative analysis of product distribution
First, identify key channels for selling goods (for example hypermarkets, supermarkets, convenience stores, markets, pharmacies, direct sales channels, the Internet). Then evaluate the quality of the display of your goods and products of competing firms. Then estimate the share of the shelf of products.
#6: Determine the positioning of all players in the market
At this stage of the competitive analysis, it’s not even the positioning of the goods of each competitor that is important, but rather the prevailing consumer perception. Also collect information about the key brands (or promises) of competitors, about the popularity of your company in the market, and the level of loyalty to it.
#7: Rate promotion methods and advertising budgets
This information will be required to formulate the right competitive and media strategy. Information can be collected in detail with the exact budgets, coverage, and intensity of support; or briefly with a description of the format and features of the placement of the advertising message.
Do not forget to collect and analyze the layouts of advertising messages, it will give an answer to the question about the key brands and strategies of persuading consumers.
#8: Describe the key consumer of competitors
Describe the target audience will help demographic, behavioral, and psychographic criteria for segmentation.
#9: Rate the technological level of competitors
To develop competitive strategies, it is very important to understand the technological capabilities of competitors, their ability to achieve low costs, access to resources, staff qualifications and financial capabilities.
#10: SWOT analysis competitive advantage assessment
The last stage of a competitive market analysis is to compile a brief SWOT analysis for each competitor. There is no need to do a detailed analysis, just specify 1-2 theses for each item of the SWOT analysis.
When the SWOT analysis is ready, evaluate the competitive advantage of your company and the main competitors, our competitive advantage analysis technic with a ready-made example will help you in this.
We hope that we were able to convince the reader that competitor analysis is a vital tool for any kind of customer-oriented business. Without a competitive analysis, the company’s management will not represent its place in the market, which means it will not be able to pave the way for success and prosperity.
In the framework of one article, it is impossible to describe all the subtleties of such a labor-intensive event, as a study of competitors. We tried to give our readers only a simple general idea, but using this material it is quite possible to independently conduct a competitive analysis of a small company that does not want or cannot spend money on outsourcing consulting services.