How to Conduct and Prepare a Competitive Analysis
Digital Library > Defining and Serving a Market > Competitive intelligence
“How to Conduct and Prepare a Competitive Analysis”
An in-depth investigation and analysis of your competition allows you to assess your competitor’s strengths and weaknesses in your marketplace and helps you to choose and implement effective strategies that will improve your competitive advantageiWHAT TO EXPECTAn in-depth investigation and analysis of your competition is one of the most important components of a comprehensive market analysis. A competitive analysis allows you to assess your competitor’s strengths and weaknesses in your marketplace and implement effective strategies to improve your competitive advantage. This Business Builder will take you through a step-by-step process of competitive analysis, helping you to identify your competition, determine and weigh their attributes, assess their strengths and weaknesses, and uncover their objectives and strategies in your market segment.
WHAT YOU SHOULD KNOW BEFORE GETTING STARTED [top]
What Types of Organizations Should I Consider as Competitors?
Any business marketing a product similar to, or as a substitute for, your own product in the same geographic area is a direct competitor. Firms offering dissimilar or substitute products in relation to your product or service are considered indirect competitors. Indirect competition would exist between the manufacturer of butter and a manufacturer of margarine selling to the same customers.
Another example is the manufacturer of eyeglasses who competes indirectly with contact lens manufacturers. Stated in other terms, indirect competition will satisfy the customer’s need with a particular product or service, although the product or service used may be different from yours. If a firm has similar products and distribution channels, but has chosen to operate in different market segments, they are not at this time your direct competitor. However, it’s important to monitor the marketing activities of such firms because they may decide to move into your market segment, just as you may decide to move into theirs. Take a moment and identify your direct and indirect competitors:
Why is a Comprehensive Competitive Analysis an Important Part of a Marketing Plan?
To achieve and maintain a competitive advantage in reaching and selling to your target market, you must possess a thorough knowledge of your competition. An in-depth competitive analysis will provide you with the following:
- An understanding of how your existing and potential customers rate thecompetition.
- A positive identification of your competitor’s strengths and weaknesses.
- A mechanism to develop effective competitive strategies in your targetmarket.
Do I Need to Analyze All of My Competitors?
There are several markets where it is relatively easy to name every competitor. These are concentrated markets where only a handful of competitors exist. If this is the scenario for your product or service, you will need to develop an analysis for each competitor. The steel industry and automobile industry are examples of these types of markets.
If you are selling in a market with many competitors, your job of analyzing the competition becomes a little more difficult. Since it is unrealistic to collect and maintain information on dozens of competitors, you will be able to save yourself valuable time, without sacrificing the integrity of your competitive analysis, by using the old 80/20 rule. In fragmented markets with many competitors, it is most probable that 80% of the total market revenues are accounted for by 20% of the competition. It’s the 20% you would examine most closely.
For instance, in the computer industry, the personal computer market, is represented by hundreds of clone manufacturers with the majority of the market being captured by a handful of manufacturers such as Compaq, IBM, and Apple. When using this approach it is important to keep abreast of your market for new and upcoming players who through some variable, whether it be new technology or an aggressive advertising campaign, may become a dominant player.
What Means are Available to Limit and Control the Competition?
Marketers of different brands of products will often pursue a particular market segment. Market Segmentation, which is the means of breaking down larger markets into smaller ones requiring different marketing mixes, is a means for strengthening and focusing your attempt to limit and control the competition. There are however, a broad range of strategies a business can employ in a competitive environment — from price changing and new packaging to improving customer service and new product development.
CONDUCTING AND PREPARING YOUR COMPETITIVE ANALYSIS [top]
Conducting and preparing your competitive analysis will follow these steps:
- Conduct Research
- Gather Competitive Information
- Analyze Competitive Information
- Determine Your Own Competitive Position
Professional marketing research, such as focus groups and questionnaires, can provide you with valuable information about your competition. While a marketing research firm can save you time and legwork, it can be quite expensive and simply not a possibility for new and growing businesses. Much of the information you need in order to profile your competitors is readily available to all business owners. As your business grows and expands, you should consider supplementing your own research efforts with some formal research conducted for you by an outside firm. Before you begin seeking out the sources listed below, keep in mind that you need to obtain answers to the following questions:
- Who are my top three competitors?
- On what basis am I able to compete?
- What is the range of products and services they offer?
- Are their products or services aimed at satisfying similar target markets?
- Are my competitors profitable?
- Are they expanding? Scaling down?
- How long have they been in business?
- What are their positive attributes in the eyes of customers?
- What are their negative attributes in the eyes of customers?
- How do current customers view us compared to the competition?
- How can I distinguish my company from my competitors?
- Do they have a competitive advantage; if so, what is it?
- What is their marketing strategy?
- What is their promotional strategy?
- What are their pricing structures?
- Do they operate in the same geographic area?
- Have there been any changes in their targeted market segments?
- What is their size? Revenues?
- What is their percentage of market share?
- What is their total sales volume?
- What is their growth rate?
- How do they rate on:
- customer service?
- quality of product/service?
- hours of operations?
- pricing, incentives?
- How do current customers rate the following features of your business compared to your competition.Rate the following as: fair, good or excellent.
Our Company / Competition
___________ /__________ Price
___________ /__________ Quality
___________ /__________ Durability
___________ /__________ Image/style
___________ /__________ Value
___________ /__________ Name Recognition
___________ /__________ Customer Service
___________ /__________ Customer Relations
___________ /__________ Location
___________ /__________ Convenience
___________ /__________ Other
Gather Competitive Information
Secondary sources of information are recommended as an excellent starting point for developing a competitive and industry analysis. Secondary sources include information developed for a specific purpose but subsequently made available for public access and thus alternative uses. For example, books are secondary sources of information as are articles published in journals. Marketing reports offered for sale to the general public also are considered secondary sources. Although, they have been created for a purpose other than your current need, they are still excellent sources of information and data. With the ever increasing speed of document identification and retrieval through electronic means, secondary sources are not only an inexpensive source of information but are readily available soon after publication. Sources of information include:
- AdvertisingNot only does advertising copy tell you a competitor’s price and other product information, it provides an indication of your competitor’s entire promotional program and budget. When reading a competitor’s advertisement be sure to note the following: publication, frequency, special offers, product features and benefits highlighted. If your competitor suddenly places an advertisement in an industry publication that neither of you are currently selling to, it’s an indication that they’re trying to reach a new market segment. It’s also important to notice the design and tone of your competitor’s advertisements. What kind of image do they convey? How does your own image compare? Are their advertisements in color while your own are black-and-white? Even if they’re not, a clever advertising campaign can communicate that your competitor is an innovative, fresh company.
- Sales BrochuresSales brochures provide a wealth of product information. You can learn how your competitor is positioning their product and company and what features and benefits they’re using to sell their product. Try to obtain all new sales brochures and literature your competitor publishes. Significant changes in the content will indicate that new strategies are being employed.
- Newspaper and Magazine ArticlesArticles in newspapers and magazines are a source of information you can use to get an idea of what your competitor is planning for the future, how their organization is run, and what new product information or innovations they have. Journalists may also uncover and reveal unflattering information about your competitor that may prove valuable to you. Be on the lookout for product reviews in magazines; they will reveal a competing product’s strengths and weaknesses. Visit a college or public library. The reference librarian will show you how to find pertinent articles online much more quickly and easily than you’ll find them by browsing.
- Reference Books and DatabasesThe publications listed in this section are available at most public and college libraries that have business resources. Ask a librarian to help you find them, as many are likely to be online and not listed in the library catalog.
- Government sources that you should examine include:
- Census Bureau sources of statistics on your business, such as the Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations, County Business Patterns, the Annual Survey of Manufactures and the Economic Censuses.
- State agency publications such as industry directories, and statistics on local industry employment, production, and equipment capabilities. Find likely sources through the State and Local Government on the Net Web site.
- Local competitive data from the City Clerk’s office, the County Clerk’s office and the Chamber of Commerce.
- Commercial data sources include:
- Dun & Bradstreet Million Dollar Database directory. This database includes over 1,600,000 businesses with a net worth of $1 million or more. Data can be selected alphabetically, geographically, by line of business, and officers and directors.
- Ward’s Business Directory of U.S. Private and Public Companies (annual), provides profiles of over 100,000 companies (small and mid-size companies as well as large corporations, most privately held) across the U.S. Profiles include assets, gross earnings, revenues, and other pertinent information.
- Financial ratios that can be used to compare your company’s performance with competitors’ performance are published in Almanac of Business and Industrial Financial Ratios by Leo Troy, the Dun & Bradstreet Industry Norms and Key Business Ratios, and RMA Annual Statement Studies.
Online versions of these products not only make their pertinent statistics easy to find. They often permit you to download data so you can combine it with other data to produce your own statistics.
- Government sources that you should examine include:
- Annual ReportsIf your competitor is a publicly-held company, many of its reports to the U.S. Securities and Exchange Commission are available on the SEC-Edgar Web site. Annual reports provide financial information, including sales volume, revenue increases, and their total market share. 10-K reports provide still more detail, and are supplemented by the quarterly 10-Qs. 8-Ks show significant events such as acquisitions and board membership changes when they occur between 10-K and 10-Q filings.
Annual reports from privately-held corporations are sometimes available through friends, relatives, and business acquaintances who own stock in a competitor’s company.
- Your Sales ForceYour sales staff probably has more access to competitive information than anyone else in your organization. Customers often show salespeople sales literature, contracts, price quotes, and other information from competitors. Part of a salesperson’s job is to get customers to discuss problems they have with a competitor’s product. Customers will also reveal your competition’s product benefits, strengths, and customer service programs.
Instruct your sales force to ask for copies of any competitive literature if and when that’s possible. Your entire sales staff should keep a record of all competitive information they discover — even if it’s just a rumor or gossip. Devote a regular portion of each sales meeting to a discussion of the competition.
- Other EmployeesYour employees working in other areas of the company also become exposed to competitive information. They interact with others in their industry area and often learn what your rival is doing or hear gossip and rumors. Make sure your entire staff knows they should share any information concerning the competition immediately.
Former employees of a competitor can provide you with insight on: your competitor’s new products, marketing strategies, how-to improve productivity and employ other resources more effectively, and what your competitor’s general working environment is like.
- Trade AssociationsMost professional trade associations compile and publish industry statistics and report on industry news and leaders through trade association magazines and newsletters. Most trade associations also sponsor trade shows and other professional meetings. This is an opportunity to see first-hand what your competition is producing. It also provides the opportunity to discover new players who may soon become your competition.
- Direct ObservationIf you own a flower shop, you should visit all of the flower shops in your geographic region. Act as a prospective customer; ask questions. You can learn about their selection and service and compare it to your own.
- Do not use an alias or disguise to gather intelligence from competitors. It may seem like a trivial deception, but it is dishonest, and could come back to haunt you.
- If you produce a product that is distributed to retail outlets, visit thestore locations and note the following:
- how much stock is present versus your competitor’s
- the placement of your product on the shelves versus your competitor’s
- if your competitor is supplying any point-of-purchase display materials
- If you and your rivals have similar products and prices, then it’s especially important for you to know how you compare on customer service issues. Call an 800-number and pretend to be a customer with questions and problems.
- If you sell products through a catalog, you not only want to be on your competition’s mailing list; you should order a product from them to determine how long it takes to arrive, the method of shipment, and how it was packaged.
- Buy your competitor’s products. Products can be evaluated and reverse engineered to provide meaningful information about your competitor’s capabilities and weaknesses, technological innovations, manufacturing costs and methods.
- Your CompetitorsYou probably see the owner of a rival organization at trade shows, association meetings, and perhaps even socially. You can garner a great deal of information through a simple, friendly conversation. People like to talk about themselves and share their success stories and concerns with business associates.
Assign someone to check the competitions’ Web sites regularly for pertinent changes and news. (And take a good look at your own: Do you say anything there that you’d just as soon not have your competitors see?)
- Your Business NetworkMake it a point to interview your customers, suppliers, and industryexperts about your competition’s product and service.
Analyze Competitive Information
Once you’ve gathered all of the competitive data you have been able to locate, it’s analysis time. You should analyze to determine product information, market share, marketing strategies, and to identify your competition’s strengths and weaknesses.
You should know from your sales staff and customer feedback what product features and benefits are most important to your customers and potential customers. A product’s or service’s competitive position is largely determined by how well it is differentiated from its competition and by its price.
- Make a list of product features and benefits in order of importance, and prepare a table to show whether or not each of your competitors fulfill them.For example, Medium-sized companies that purchase copier machines may look for the following product benefits and features when making buying decisions:
Competing Company: A B C D Features: 1. Auto paper feed 2. Auto enlarge or reduce 3. Collates 4. Staples 5. 24 Hour Repair Service 6. Warranty Benefits: 1. Easy to operate 2. Saves money 3. Good print quality 4. Dependable 5. Fast Price: $
Other factors you may want to evaluate include:
- Image/Design/Perceived Value
- Social Image/(politically correct)
- Next, indicate with a check mark which of your competitors has which features. Features are fairly straightforward, either a product has a feature or it doesn’t. Benefits, on the other hand, are not as simple and should only be recorded based on customer feedback. For example, company B may claim in their company literature that their copier is fast, but a user may feel otherwise. Or, company B may indeed have a copier that by industry standards is fast, but you may have a copier that’s even faster.
- Now, evaluate your competition’s product or service. How does your product compare to your closest competitor’s product? What features and benefits are unique to your product? To theirs? The more unique features and benefits your product has, the stronger your market position will be. For example, if you produce and market an office copying machine that staples collated copies together and your closest competitor doesn’t have this feature, you have an advantage. You can then sell the same market segment the benefit of added convenience and time saved. However, your competitor may have developed a feature that you don’t have on your copier that gives him/her a selling advantage.
- Evaluate your competitor’s price. Just because you have the same products as other businesses, doesn’t mean everyone has the same price. Your own production costs greatly impact your pricing. If your price for a similar product is higher than your competitor’s, then your market position is weaker; and if it’s lower, then your competitive position is better.A temporary price decrease by a competitor might indicate nothing more serious than a transient need to move excess inventory. However, a trend of lowered prices may indicate that your competition is doing it to gain market share and improve production costs. It could also mean your rival is in financial trouble and has been forced to lower prices. It’s in this type of situation that rumors and gossip become helpful. If there are rumors that a company is in financial trouble and you discover price fluctuations, it’s more likely that there are problems.
Be sure your analysis includes product/service charges added to the purchase price, such as installation or additional equipment required.
Customer preference of products is only part of the analysis. There are internal operational factors which can provide a competitive edge as well. Your competitors’ products may not have the high quality of yours, but they might offer free delivery; or their employees might be extremely motivated and committed to gaining market share. You need to learn how they are doing on the inside. Some factors to consider:
- Financial resources — Are they able to withstand financial setbacks? How are they funding new product development and improvement?
- Operational efficiencies — Are they able to save time and cost with clever production and delivery techniques?
- Product line breadth — How easily can they increase revenues by selling related products?
- Strategic partnerships — What kinds of relationships do they have with other companies in terms of product development, promotion or add-on sales?
- Company morale/personnel — What is the motivation, commitment and productivity level of the employees?
The most widely used measure of sales performance is market share. A competitor may not provide the best product or service; however, if they generate a significant amount of sales to the market, they may:
- Define the standards for a particular product or service.
- Influence the popular perception of the product or service.
- Devote resources to maintaining their market share.
To determine your company’s market share on a percentage basis, thefollowing formula should be used:
Current Market Share = Company sales
Industry salesYou should then compute each of your competitors’ market shares. It will give you a clear idea of how your sales volume compares to your competition’s. If you don’t have total industry sales figures you won’t be able to figure out your market share, but you can still get a good idea of your competitive position by comparing the sales volume figures. For example, say last year Company A sold $3 million dollars worth of copiers, Company B sold $5 million, and you sold $4 million. It’s obvious that Company B has the largest share of your market and is your greatest competitor.
Competitive Objectives and Strategies
For each competitor in your analysis, you should try to identify what their market objectives are and determine what types of strategies they are using to achieve them. Are your competitors trying:
- To maintain or increase market share?
- To maximize short-term or long-term profits?
- To introduce technologically improved products into your market?
- To establish themselves as the market leaders?
- To protect their market share under attack by strong competition?
- To develop new markets for existing products?
Once you have identified what your competitors are trying to achieve, you will need to determine what type of strategy they have employed so you can eventually counteract with a strategy of your own. There are many specific strategies companies can employ. Some possible strategies your competitor’s may be employing are:
- Reducing their prices.
- Advertising in new publications, or advertising more frequently.
- Buying out a competitor to increase market share and customer base.
- Improving a product with a new innovation.
It’s important to note your competitor’s actions over time. For example, if one of your competitors is consistent with pricing, product features, promotion, and their market share it may mean that they’re not exploring or exploiting additional market opportunities. Or, if one of your competitors has a decline in sales volume it may mean they will be employing new marketing strategies in the near future and should be monitored closely.
Identify the Competitions Strengths and Weaknesses
In order to develop effective competitive strategies, you need to make a realistic assessment of your competitors’ strengths and weaknesses, as viewed by the market. You need to ask yourself what each of your competitors do very well, better than your own company? Then, ask yourself in what areas are each of your competitors weak. Construct a simple chart. The copier company’s might appear like this:
Strengths and Weaknesses of CompetitorsCompetitor: Strengths Weaknesses A. Superior customer service
3-year warranty Higher price B. Quick innovator
Unique features Higher price
Limited distribution channels C. Large market share
Comprehensive ad campaign
Viewed as market leader by market segment Slower product
No direct access to parts
Other Factors to Consider
- Shakeups. As you analyze your competitive information be on the look out for broad management changes or changes in ownership. This is an indication that major policies and marketing shifts are on the horizon and you should anticipate changes. It may be a good opportunity to court your competitor’s star employees. People often change jobs during management shakeups.
- New Players. Your competitive analysis should include any new players, even if they haven’t yet captured a significant piece of the market. New companies often bring new ideas and innovations to the marketplace and can quickly become major players. Don’t underestimate anyone.
- Future Competition. In your competitive analysis, you need to make a few predictions about what the competition is going to look like in the future. Competitors are constantly coming and going in the marketplace. Ask yourself: Who are my competitors likely to be? If you are introducing a new widget, how long before the competition catches on? Forecasting future competition will give your potential investors the confidence in the long term viability of your business.Barriers to Entry. Companies whose competitive edge depends on new technology, new manufacturing techniques or access to new markets need to be aware of the common barriers new competition faces when trying to gain entry into the marketplace. They include:
- Patents. Patents provide protection for new products or services.
- Market Saturation. Saturation reduces the chance of competitors gaining a foothold in the market
- High startup costs. This is a difficult obstacle for small competitors.
- The need for significant expertise, or manufacturing and engineering difficulties. This makes it difficult for competitors to have the knowledge to compete.
Determine Your Competitive Position in the Marketplace
By now it should be fairly clear to you if you are a: market leader, one of several followers, or new to your marketplace. Once you have identified and analyzed your competition, and understand your competitive position, you are ready to do the following:
- Identify and discuss key areas of competitive advantage and disadvantage. Review the competitive environment for your product or service. Comment on both similar and substitute products or services.
- Summarize the major problems and opportunities facing your firm which may require action. Issues which should be considered include types of market penetration, distribution coverage, product line needs, price revisions and/or cost reductions.
- Integrate your analysis of the competition with demographic analysis of your market to develop and implement a marketing strategy that will strengthen your market position.
A FINAL WORD [top]
Schedule a competitive analysis on a regular basis, as you do for inventory and other business functions. Depending on what market you’re operating in it could be every two months or once a year. Consider employing a college student for the summer or create student internship positions to fulfill the task. You must remember that your competitive research and analysis is never finished. This is on-going, rather than a one-time process. Your competition can change quickly, new players can emerge tomorrow, the economy may upswing or downswing at any moment. It’s only when you clearly understand your competition that you can evaluate your own market position. Only then can you exploit their weaknesses to your competitive advantage and seek to improve your own marketing efforts.
___ Have you identified your direct and indirect competitors?
___ Do you know how the customers in your target market rate your product in comparison with your cometitors’?
___ Have you compiled the intelligence you have gathered on each competitor in a format that fosters comparison of features and market postions?
___ Do you have strategies for building on your strengths and minimizing your vulnerability where you have weakenesses? Do you have strategies for minimizing the value of your competitors’ strengths and taking advantage of their weaknesses?
___ Have you communicated the competitor information and your strategies to every worker who needs to know? In research and development? In production? In marketing and sales?
___ Have you established procedures for keeping your industry and competitor profiles current?
Competitive Intelligence for the Competitive Edge, by Alan Dutka. (NTC Business Books, 1999). Brief discussions of competitive intelligence activities are followed by extensive real-life case-study examples.
“Do You REALLY Know What The Competition Is Doing?” by Darrell S. Mockus. Journal of Business Strategy 24:1 (January-February, 2003), 8-10.
“Spies Like Us,” by Carole Ashkinaze. Business Week (July 12, 2000), F4+.
“Face-to-Face: Spies Like Us,” by Stephanie L. Gruner. Inc. 20:11 (August 1998), 45 (7).
“Spy Away,” by Mark Henricks. Entrepreneur 28:3 (March 2000), 98.
What Is CI?. Society of Competitive Intelligence Professionals.
“Competitive Intelligence vs. Espionage,” by Fred White. ThomasNet Industrial Newsroom, May 22, 2007.
Writer: Susan MaGee
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