Conducting competitive analysis is a key step in building a strategy that gives your company a competitive advantage. This includes identifying competitors’ strengths, weaknesses, strategies, positioning and value proposition.
A sustainable competitive advantage comes from unique factors that your competitors cannot easily replicate or match. These can include a specific location that gives you access to raw materials, a legal relationship with your suppliers or an intuitive new technology.
Understanding Your Competitors
The first step of a competitive analysis is to identify the competitors your company faces. This includes direct and indirect competitors, depending on the industry. You can find your direct competitors by doing a simple Google search for products and services similar to those you offer. For example, if you are in the gaming systems business, your competitors include Sony’s new PlayStation 5 and Nintendo’s popular Switch console.
Indirect competitors are those who serve the same target market but do not offer the same product or service. Indirect competitors can also be found by looking at alternative channels of distribution, such as online shopping.
After identifying your competitors, you need to analyze their marketing strategies and the value they provide. You can do this by creating a competitor feature matrix. This is similar to a product features matrix, but you will compare the marketing strategies of your competition instead of their product characteristics. In addition, you can look at other factors such as management, image, customer service, growth potential and availability of capital and resources.
Identifying Opportunities
Performing regular competitive analysis can help you identify opportunities to innovate your products, better serve your target customers and increase levels of profitability. This analysis can also help you develop strategic business planning.
A competitive analysis takes stock of competitors that may pose a threat to your business and isolates each participant’s operational strengths, substantive weaknesses, product offerings, market dominance and missed opportunities. Aspiring entrepreneurs can use this information to formulate strategic plans that will allow them to break into a new industry or improve their existing product lines.
Generally speaking, there are two basic types of competitive advantage based on Michael Porter’s five forces analysis: low cost and product differentiation. Low cost enables companies to produce goods or services at lower prices than their competitors. Product differentiation enables companies to provide consumers with benefits that exceed the value of the goods themselves. For example, Apple has successfully differentiated itself from its competitors by delivering high quality phones and computers at a premium price.
Developing a Strategic Plan
An effective strategic plan takes into account external factors that may influence the success of your business, including competitors. Competitive advantage analysis helps you take stock of the market participants that could pose a threat, including their operational strengths, substantive weaknesses, product offerings and market dominance.
A comprehensive competitive analysis will help you identify ways to differentiate your products from the competition and provide superior value to customers. You can also gain a cost advantage by offering lower prices for the same benefits or leveraging unique assets to overcome price-based disadvantages.
Once you have a firm grasp on your operating environment, you can start creating a strategic plan to guide the direction of your business for years to come. Your plan should include top-level objectives and a timeline for achieving them. It should also address resource needs, reflecting any new projects and staffing requirements. You should review and update your plan regularly, ideally on a quarterly basis.
Implementing Your Plan
A competitive advantage analysis isn’t just a way to understand the current marketplace; it’s an important component of strategic business planning. Having a strong understanding of your competitors helps you make informed decisions about pricing, product development and marketing.
A thorough competitor analysis will reveal broad market trends that may influence your industry. For example, a competition analysis might reveal that your competitors are focused on developing products that appeal to the premium market while leaving the bargain segment underserved. This information could prompt you to develop a new product line or market niche that isn’t being addressed by your competitors.
To maintain and build a competitive advantage, you must regularly perform competitor analysis to identify opportunities and threats. The information you gather will help you create clear business goals and a comprehensive strategy for achieving them. This will allow you to improve your business model and keep up with the competition. In the end, it will result in higher margins, more customers and stronger brand loyalty.