It is important to know as much about your competitors as your own company. Small businesses may find it especially helpful to keep a sharp eye on their competitors. Because the market share captured by small businesses is little, it is absolutely necessary for them to be aware of every detail regarding their competitors; giving up even a small part of their market share amounts to a large chunk of their profits.
Being ignorant about competitors can have devastating impacts on these businesses. Some small businesses remain unaware about their competition until a new company sets up close by and starts eating into their profits.
An effective competitive analysis helps you identify competitors and their respective strengths and weaknesses. With knowledge of your competitors’ actions, you will be able to better understand what products or services you should offer; how you can sell your product more effectively; and how you can position your product. Your competitive analysis should be performed in the following way:
Step 1: Identify your competition
There are competitors in every business and you need to find out who your customers can go to, if they want to procure the products that you sell. No matter how innovative your product is there is always some other product your customer can use as a substitute. You should be aware of the businesses supplying such products. Competitors are grouped into three categories – primary, secondary and potential.
Your primary competitors are the market leaders in your industry, who currently dominate the market. For example if you own a departmental store, other such stores in the same area offering similar products as you are your primary competitors. You are competing with them directly.
Secondary competitors are the ones who are not in head-to-head competition with you, but are targeting the same general market. If there is a departmental store selling only frozen food whereas you sell a wider range of products then the former is a secondary competitor.
The final category of competitors you should look out for are your potential competitors. These are companies which might move into your market and who you may need to compete against. Globalisation has increased the number of potential competitors entering markets. An ice cream vendor should be aware of imported ice creams entering the market and be prepared to compete with them.
Step 2: Analyse strengths and weaknesses
After identifying your competitors it is time to analyse each of their respective strengths and weaknesses. Ask why customers will choose their product over yours? What is superior about their products; price, quality, brand value or service? Once you are done analysing, draw a chart to list the names of your competitors and for each one, write its strengths and weaknesses in different colored boxes. This will help you select strategies to attract potential customers.
Step 3: Consider opportunities and threats
Knowing your competitors’ strengths and weaknesses will help you identify what set of actions will help you beat them out. But strengths and weaknesses are under the control of firms. External forces existing outside the firms also have an implication on their actions; these are the opportunities and threats. These are not controlled by the firms.
You need to examine how well your competitors are prepared to deal with these external forces. Technological changes, economic factors, rules and regulations or even the entry of a new competitor are all types of threats and opportunities a company can face.
A garment manufacturing company should analyse how well its competitors can cope with compliance to rules and regulations regarding the safety of its workers. Here again, you may find it useful to list each of your competitor’s threats and opportunities in colored boxes.
Step 4: Determine Your Position
As soon as you know the condition of your competitors, you should be able to evaluate your business using the same ranking as your competitors. Redo the strengths, weaknesses, threats and opportunities evaluation for your own business, to know where you stand.
When you have identified your position in the game you will be better able to decide upon your actions. You will know the areas where your strengths lie and where you need improvement. The strategy is simple; capitalise on the strengths of your company and the weaknesses of your competitors.
