Competitor analysis takes an in-depth look at your competitors to understand their motivation and project what actions they may take in the future. The analysis compares the competitors to other participants in the same industry and your company.
What it is: The competitor analysis tries to define who a competitor is, what are their capabilities and weaknesses as well as what motivates them. Developing a definition of their capabilities, customers, products, and services, and how they are similar to and different from your company and the others in your industry.
What does it do: The competitor analysis will help you understand what their historical actions have been, what they are doing now, and what might they do in the future. Because your company does not act in a vacuum, it is critical to know what your competitors might be planning or how they will react to your actions. What can they do, and what will they likely do, will help in formulating your strategy and implementing your plans. Entrepreneur Magazine offered the following reasons to complete competitor analysis:
It can help you understand your business’s competitive advantages and disadvantages in your industry
You can gain an understanding of your competitors’ business strategies
To provide an informed basis to develop strategies to achieve competitive advantage in the future
To help forecast the returns that may be made from future investments, ie how will competitors respond to a new product or pricing strategy? Doing a competitor analysis holds several benefits for the growing enterprise:
Uses:
How is it used: Knowing what your competitor's size, capabilities, products, services, and objectives are can greatly increase your ability to succeed in the market place. You can avoid getting behind in research, product introduction, and new product features and services. It can also be important to understand how your competitors are trying to impact the customers in the market place, and how you can act in advance or react to those moves.
Where: In competitor analysis, you need to decide both who you will analyze and what you will analyze.
Obviously you want to look at the largest competitor in the market, the one with the largest revenues and greatest market share
Consider the competitor with the highest profitability and highest-priced products. You must pay attention to the most differentiated player
Look for the competitor with the lowest cost position and monitor their profitability and the sources of their low-cost position
Look for the competitor who is experiencing the greatest market share growth. Even if they are a smaller player today, they have identified something that is making more customers change their purchasing to them, so they must have found something important in the industry.
Look for the most aggressive competitor. Why are they trying to grow, and how will they retain the customers they win through their aggressive actions
Look at any competitor that has recently changed their strategy and are trying to change their position in the industry
Consider competitors that are closest to your customers geographically, or in the products they provide, or in the markets the customers compete. Competitors that are most like you are your nearest competitors and the most likely to be able to take your current customers.
Consider competitors that sell substitute products, not the same kind of products as you and others in the industry, but products that if your customer bought they would no longer need your products.
Consider potential entrants that may try and enter your industry through acquisition, building capacity, a supplier moving downstream, entering from another country, or converting existing capacity of other products to products that compete with you.
Competitor Overview and Profile: who are they, how long have they been in your industry, how are they perceived in the marketplace, how much revenue and market share, nature of their advantage, etc.
Competitive Advantage: What are the sources of their competitive advantage, how unique is it, how sustainable, how important to the customer
Financial resources: what kind of debt to an equity position, available cash, resources for financial decisions, cash flow, etc.
Staff: what kind of resources does the company have to grow, meet their current demands, and develop new competitive products and services
Products & Services: what products do they have, how do they compete, what advantages do they have, what weaknesses in product performance are known, how is product introductions made, etc.
Service: how do customers respond to their service, how consistent are they in providing service, what services do they offer, what advantage do their services give them
Target Markets: Which markets do they target and focus on, how successful are they in their targeted markets, are they targeting any new markets?
Market share: what is their market share, is it growing or shrinking, is it more concentrated in certain segments of the market
Pricing: do they price for profit or market share; do they use penetration pricing, skimming or status quo; are their prices higher or lower than yours; how sustainable is their pricing
Cost Position: Do they have an advantaged raw material position, do they have scale advantage, do they have a technology position that gives them lower variable or fixed costs, etc.
Customers: Where are there customers geographically, are they concentrated by end-use or industry, are their customers loyal or just price buyers, how do they attract or retain customers
Financial data: Provide income statements and balance sheets if available show multi-year revenue growth, cash flow, and what is happening to their cost position
Brand recognition: How is their brand viewed in the market place, how sustainable is their brand, what are they doing that is strengthening or weakening their brand
Location: Where are their corporate headquarters, where are manufacturing plants, distribution points, terminals, sales offices, research facilities, etc.
Distribution Channels: How do they distribute their products, do they have any advantaged positions or channels, how do their positions affect their cost or brand image
Marketing strategies and tactics: How do they attract customers, how do they convert them into customers, how do they retain customers, how do they monetize existing customers
Logistics: How do they move their products and deliver them, where are they stored, are there issues with how they move and store their products, etc.
Overall Strengths: What are their strengths, what are they based upon, how sustainable are they, can they be easily copied, how important are the strengths to the customers
Overall Weaknesses: What are their weaknesses, what are they based upon, how difficult are they to overcome, can they be easily covered up, how important are the weaknesses to the customers
What Opportunities are available to them: Is there something happening in the market or industry that could give them a future unique advantage
What Threats are they facing: Is there something happening in the market or industry that could create for them a future unique disadvantage
Selecting which competitors to analyze can be a very important task:
Competitor analysis can cover many topics that can vary in importance from industry to industry. Some topics that are commonly covered include:
Why: If we do not know what our competitors are doing and what they are capable of, we may leave ourselves defenseless against their future moves, and we do not provide the opportunity to take advantage of weaknesses or openings in the market place or industry.
Limitations:
Where it shouldn't be used: There is little or no risk in doing a competitive analysis when you are an active participant in an Industry. But if you are looking to buy someone in the industry or looking to enter the industry, you may not want to openly complete a competitor analysis that could give away your motives before you are ready for them to be public. In this case, you might want to use a consultant to cover your activities.
Any restrictions: Be careful not to believe everything you hear or find, there can be significant misinformation in the industry. Look for corroborating evidence to support your findings. Particularly be careful of what companies say about themselves and their intentions on their own web site. Often what is said on their web site is more a wish for the future and not evidence of their capabilities or accomplishments.
Warnings: Evidence has indicated that people in a company misjudge the level of their own company's and their competitor's capabilities and positions. We often find that employees are directionally correct about their company and the competitors, but they are attitudinally wrong. This means that they can often accurately identify the weaknesses and strengths, but they think their own strengths and the strengths of their competitors are stronger than the customers think. They also think that the weaknesses of themselves and their competitors are weaker than the customers perceive.
Identify who are your customers and which ones you will analyze: See the topic above called "Selecting which competitors to analyze can be a very important task" and select the companies to analyze
Gathering Data on the competitors you selected:
Websites and social media sites
Annual reports and federal filings including financial, environmental, sustainability, etc.
Company publications and press releases
Look in local papers for tax abatements offered to encourage business start-up, construction, and other local information about the number of people employed, revenue in community, etc.
Talk to customers through salesmen, focus groups, surveys, etc.
Look for published reports about the competitor
Talk to industry experts and people familiar with the company
Talk to former employees of the competitors
Buy their products, visit their sites and stores, order their product information, etc.
And many other options described in the other resources on this page
Determine which types of data you will collect (consider topics from the list above under "Competitor analysis can cover many topics that can vary importance from industry to industry")
Collect the data from many of the sources outlined in the demonstration videos and additional resources. Some examples include:
Analysis of data
Utilize one of the templates or examples on this page to lay the comparative information out so that the competitor's information can be analyzed against each other
Avoid using emotion, but base the analysis on evidence and facts that you were able to find
Where ever possible calculate differences in cost, price, assets, revenue, etc to compare the competitors
Where you can not compare quantitative data directly use a prioritization table like the one found in the templates below to compare qualitative information
Interpretation of results
Find the strengths and opportunities for each competitor related to specific market segments and applications
Find the weaknesses and threats for each competitor related to specific market segments and applications
Identify where each competitor currently wins and where they will lose (Utilize a SWOT analysis to help)
Use industry analysis and Port's Five Forces analysis to understand the impact of different competitive positions in the industry
Determine the sustainability of each competitor's advantages and disadvantages
Predict what strategic initiatives each competitor may initiate in the near future based upon the other analysis you have completed
Determine what defensive actions you should take based upon the analysis
Determine what offensive actions you could take based upon the analysis
Presentation of results
It is common to use PowerPoint presentations to show all of the different topics of the competitive analysis
The templates in this document are also good presentation formats
There are many ways to show a competitor analysis. You can show the template you used to gather the data, but that may be too cumbersome and difficult to read. The template included here is an example of how you could build a competitor analysis presentation: MECLABS: Competitive Analysis TemplateDownload MECLABS: Competitive Analysis Template
