Competitive analysis is the study of the competitive environment in which a firm operates, including strengths and weaknesses of main competitors and your own business, target audience, barriers to enter the market, and marketing strategies. If your small business operates in a concentrated industry such as oil refiners and automobile makers, competitive analysis is a key element of strategic planning. Leaders in concentrated industries give high priority to constantly increasing their high profit margins.
Steps of Competitive Analysis
Competitive analysis helps you analyze your competitors’ capabilities, objectives and strategies.
a) Identifying competition
Include your direct competitors that largely mirror the products and services offered by your business, but also companies that may indirectly compete with yours, offering products or services that address the needs of the same target audience. Also include companies that might consider entering your market. Once your list is compiled, determine which companies pose the greatest threat for your business.
b) SWOT Analysis
Perform a SWOT analysis to analyze the Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T) of your company and competitors. “Strengths” can be your firm’s internal distinctive competencies that facilitate business growth, whereas “weaknesses” are internal factors that hinder business growth including low quality products or services, poor customer service, etc. “Opportunities” and “threats” are external factors that can hamper your business’s performance, including (1) economic forces; (2) social, cultural, demographic and environmental forces; (3) political, governmental and legal forces; (4) technological forces and (5) competitive forces.
c) Competitors’ Objectives & Strategies
Study how your competitors market and advertise their businesses by going over their quarterly and annual reports. Look for press releases and interviews and talk to consulting firms that have gone over your competitors’ files. What is their target audience? What are their competitive advantages and disadvantages compared to your business? What is their pricing strategy? All this valuable information will help you form a clear picture about your competitors’ objectives and strategies.
d) Target Audience
Research your target audience to identify their needs and wants. Perhaps there is an unmet customer need that your product or service offerings can satisfy. Besides, as a small business, you should consider that new product development is a top business priority to ensure business success. Talk to customers and learn what their needs are in order to anticipate them and stay ahead competition.
e) Market Outlook
Research your market. Are there barriers to enter? Does it have a growth potential? Do you have the technical, marketing, or engineering expertise to capitalize on the market’s opportunities and grow your business? Is the market concentrated? Is the market fragmented? The answers to all these questions will provide you with a firm knowledge on how the entire market performs.
Conclusively, competitive analysis is implemented toward the understanding of competitors’ strategies and predicted behaviors. By conducting a competitive analysis for your small business, you can identify competition, what their planned strategies are and how to capitalize on your business’s distinctive competencies to achieve business growth.