Competitor analysis refers to a range of techniques used to quantify and analyse the actions of other players in your market. A deep understanding of your competitors is essential for all businesses; understanding their strengths and weaknesses can help your business becomes more successful at gaining market share and satisfying the needs of its customers.
Benefits of conducting competitor analysis
- Analysing your competitors can help your own business in a number of ways:
- Knowledge of key players helps improve your overall knowledge of the market
- Knowing why customers go to your competitors can help you improve your own services
- Competitors price points can help you determine your own
- Discovering untapped parts of the market is far easier if you know what your competitors are doing
In-house or professional
Specialist companies exist solely to conduct competitor research, but they can be expensive. You’ll need to decide whether to hire a firm or conduct your research in-house. Specialist firms have significant expertise and will utilise key resources and industry contacts that aren’t available to you. They are also experienced in getting the right information from the right people, and compiling it into analysable reports. However, since competitor analysis is an ongoing process, working with consultants can soon hit your budget. You may wish to use them irregularly or just to kick-off your competitor analysis.
Basic required information
Competitor analysis is often extremely in-depth, particularly when carried out by specialist firms. The information that will be most valuable depends on your industry and the nature of the market. At the very least you’ll want to know the following:
- Company background
- Products and services offered
- Market capitalisation
- Customer base
- B2B relationships
- Evidence of Unique Selling Points (USP) or competitive advantages
Sources of important information
Shrewd competitive analysis considers a range of sources to find relevant information on competitors.
- Self-reference – branding, sales literature, interviews, Companies House accounts, press releases, web copy, social networks
- Third party discussions – newspaper articles, reviews, testimonials, magazine interviews, news articles, market research and analyst firms
Common competitor analysis frameworks
Many businesses follow a set framework to help them identify the most important competitor information.
- SWOT – an acronym that aims to consider the strengths, weaknesses, opportunities and threats of a company. SWOT is an effective starting point for competitor analysis although its narrow focus can often lead to missed information and the tendency to pigeonhole information. Competitor data should be considered data from your own business: for example, you may wish to compare your liquidity to see if other market players pose a threat to your market share. SWOT analysis should also consider external markets as well as industry players
- Porter’s Five Forces – formed by Michael Porter of Harvard Business School in 1979, ‘Five Forces,’ uses Industrial Organisation economics to derive the most crucial five factors determining the competitive intensity (profitability) of a market. The factors are: threat of established rivals, threat of new entrants, bargaining power of suppliers, threat of substitute products and the bargaining power of customers. This analysis can be used to help companies work out how to best tap into market forces to increase profitability
- Critical Success Factor Analysis – this model considers what objectives a business must meet in order to succeed. This analysis can be applied to multiple competitors in order to discover the most common indicators of success or failure in your market