Competitive analysis is highly recommended for all companies and is particularly important from a marketing perspective. But what exactly does competitive analysis entail? What are its steps, how do you identify competitors, and exactly what data do you need? Keep reading to find answers to these questions.
What is Competition Analysis?
During competitive analysis, the company’s position is examined within the given market environment to gain a clearer picture of the intensity of competition and the firm’s potential. This process is closely related to market research and plays a central role in the organization’s strategic analysis and planning. By mapping out the market players, you gain a comprehensive understanding of the competition and of consumer needs as well. Competitive analysis helps stay on top of rapidly changing trends and innovations.
The analysis reveals market saturation and new opportunities, allowing you to check the viability of a particular project, idea, or product. There are certain areas and circumstances that can make it impossible to succeed, even with a great idea and a well-considered marketing strategy.
Therefore, it is crucial to thoroughly map out the market and competitors before launching a new product or service. Four essential steps in preparing the study should be followed when creating the analysis plan.
Step 1: Clarify the Objectives
Every analysis process ultimately aims to optimize the corporate strategy. To achieve this, it is essential to have clearly defined company goals. It is crucial in competitive analysis also, to set a clear goal, and choose the tools to be used accordingly. These goals, of course, are specific and may vary greatly depending on the company’s size, age, and industry. However, the overall company goal is usually the same: to gain or increase market share.
To be more specific when setting the goal, the following options are worth considering:
- Assessing the viability and sustainability of a project (starting a business, launching a new product or service)
- Identifying an opportunity (new trends, innovations, market gaps)
- Differentiated positioning (quality, image, brand, price)
- Refining or redesigning a marketing or communication strategy (media, messaging, content marketing, graphic design)
After clearly defining the objective, the next step is to assess the main competitors and their market share.
Step 2: Identify Competitors and Collect Data
Competitors are first collected and classified, then evaluated. Finally, important conclusions are drawn. However, it is worth remembering at the beginning of the analysis that not all competitors are the same. According to the level of competition, we can talk about direct, indirect, and potential competitors.
Direct Competition
Direct competitors are companies that offer the same product or service that you do. When we talk about competition, they come to mind first. Rivalry is most intense with direct competitors, especially when they operate in the same geographical area.
For example, a company that produces and distributes healthy snacks, cookies, and desserts, is in direct competition with another company that produces healthy snacks.
Indirect Competition
Indirect competitors respond to the same demand but with different products or services. Even though they might sell something completely different from your products, they still represent competition because they satisfy the same customer needs that your products do. For this reason, it is important to pay close attention to their activities.
For the same company that manufactures and sells healthy snacks and cookies, an indirect competitor might be a produce vendor.
Potential Competition
Potential competition is more of a theoretical concept. It includes potential new entrants who could pose a threat to the market share your company has already gained.
For a company that manufactures and sells healthy snacks, a potential competitor could be a company that sells regular, unhealthy sweets. If they expand their product portfolio, diversify their offerings, and create a healthy dessert line, they could become direct competitors.
This three-tiered classification will form the long list of our competitors. It is worth entering them into a system where you can see them all, but grouped into the categories mentioned above. The more information you gather about them, the clearer your understanding of your business’s position in the market will be. Identity, date of incorporation, location, geography, size, price range and positioning are all important factors during the analysis of competitors.
Preparing the List of Competitors
These days, it is very easy to map which companies are the market leaders in a given industry. With the help of the internet, you can access a wealth of useful information about your competitors. Knowing a few keywords related to the company’s offerings, using Google or Bing, you can easily find many of your competitors.
When conducting a comprehensive analysis of competitors’ offerings, focus on three main aspects:
- Product: Identifying the main features, price range, selection, and quality of the product or service offered by the competitor is key.
- Sales: The channels used in sales, the way in which customers are contacted and the frequency of promotions also reveal a lot about your competitors.
- Marketing: The marketing activities of competitors on social media and their websites, or through physical or digital advertising, can be thoroughly analyzed as well. The marketing agency a particular competitor works with might also be an important indicator.
It’s important to analyze competitors’ performance and the level of threat they pose, from multiple perspectives. For example, a given competitor may be performing poorly in the marketing field, which means their brand is not well-known, and you may not consider them a real threat. However, this same competitor may have a revolutionary product and, as soon as they invest in marketing and become popular, they could easily surpass you in the market. This is why competitive analysis should never be taken lightly.
Fortunately, there are many tools available to help you identify competitors and gather important data about them. One of the most popular tools is SimilarWeb. If you provide the link to your website or a competitor’s site, it will suggest similar websites, making it easier to discover competitors. But tools aren’t only designed for finding rivals. Ahrefs, for instance, is a top SEO-focused service that gives you insight into the number of backlinks your competitors have, the keywords they rank for, and much more. Semrush is another popular SEO and PPC tool, and many marketing companies offer various tools of their own to explore and analyze competitors’ business data, website traffic, and other important metrics.
Step 3: Analyze the Data
Once you have collected and organized the data, you can begin the analysis. The process of comparing competitors’ strengths, weaknesses and performance indicators is also known as competitive benchmarking.
In this framework, a study is created based on the practices observed and analyzed in competitors. Many tools help achieve this frame of reference. A lot of companies use a monthly subscription model for SEO services, as this allows them to continuously monitor competitive analysis.
One of the most popular analysis methods in business is the SWOT analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats. This approach can also be a valuable tool in competitive analysis to better understand your rivals’ activities and to map the potential of your own project or business. A SWOT analysis is a matrix consisting of the characteristics of a given project. According to one of the two used classification criteria, we differentiate between positive (strengths, opportunities) and negative (weaknesses, threats) factors. According to the other criterion, we distinguish between external (opportunities, threats) and internal (strengths, weaknesses) attributes.
By mapping out and visually representing these characteristics of the company, you can gain a clearer understanding of where to allocate resources, what marketing strategy to develop, and what the most threatening risks in the market are, that you must respond to.
Step 4: Interpret the Results
The analysis highlights the key strengths, weaknesses, and practices of established, successful businesses. It also highlights the critical success factors. Based on the results of the analysis, the company is able to develop a specific marketing plan or strategy that will be most effective in serving organizational goals in the future.
Summary
Competitor analysis is a key element of market research and essential to the success of a company. The business and marketing world is changing and evolving at an unprecedented pace, and those market players who are best able to adapt to these changes are the ones who can maintain their competitive advantage. To do this, it is essential for a company to continuously track its competitors and stay aware of its environment.
For this reason, competitor analysis must definitely be a regular activity in a company’s life, as only by doing so can the company continually adjust its strategy in line with market trends and the actions of its competitors.
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