All businesses have competition - that’s what keeps the market in balance. A little healthy competition is good because it means you have to stay on top of your game and make sure that you are beating your competitors and keeping your customers happy. Conducting a competitor analysis gives you important insight into what your top competitors are doing and can help you plan accordingly.
In this article, we will explain what a competitor analysis is and the best way to conduct a competitor analysis that will give you the best results. Here’s what you’ll find:
- What is a Competitor Analysis
- Why is a Competitor Analysis Important?
- Who Needs to Conduct Such Analysis?
- How Often Should you Update your Analysis?
- How to Conduct a Competitor Analysis
- Create a Basic Analysis of your Company
- Competitor Analysis Example
- Competitor Analysis Template
What is a Competitor Analysis
A competitor analysis is a review of your company’s major competitors in order to understand their strategies and successes (and weaknesses/failures) so that you can determine ways to differentiate yourself and stand out from the competition. By identifying other businesses that operate in the same market as you and analyzing how they manage activities like pricing and marketing, you may notice gaps in what they are offering vs. what customers want. Those gaps become your opportunities.
Why is a Competitor Analysis Important?
A competitor analysis is an important tool in your business strategy toolbox. If you are just starting out in your business, conducting a competitor analysis can give you a good overview of the marketplace and insight into industry trends. If you have already established your business and have been operational for any number of years, it is still important to keep your finger on the pulse of what your competitors are doing to help re-evaluate your own priorities and strategies.
The key benefits of conducting a competitor analysis include:
- Discovering new ways to differentiate yourself from competitors and define your unique value proposition and selling points.
- Learning from your competitors’ successes and implementing similar strategies.
- Taking note of mistakes that competitors make and doing what you can to outperform in those areas.
- A benchmark by which you can measure your growth over time.
Who Needs to Conduct such an Analysis?
In a word, everyone should conduct a competitor analysis! It may be especially useful for ecommerce businesses to help identify important trends in the industry and make informed business and marketing decisions. Newer companies can use a competitor analysis to define their unique selling propositions and figure out where they best fit in the market landscape.
In reality, any and all business types should have a competitor analysis - the more thorough the analysis, the more useful it will be in serving as a benchmark and providing actionable insights that will help propel the business forward.
How Often Should You Update Your Analysis?
A competitor analysis is not a one time thing. Most markets and businesses are dynamic, so it must be revisited on a regular basis in order to keep up with new trends and account for any changes that either you or your competitors have made. A good rule of thumb is to conduct a competitor analysis sometime between once every quarter and once a year, depending on your specific market. You also don’t want to do it too often because you need to have time to implement whatever actions you take based on your findings.
How to Conduct a Competitor Analysis
Let’s get into the details...following is a step-by-step guide to creating your competitor analysis.
Target your 5-10 Main Competitors
First things first - you need to make a list of who your competitors are. Depending on your industry and/or niche, this may be entirely obvious or you may need to do some research. No matter what, do not assume that you have no competitors even if your offering is super-specific.
To identify your top competitors, imagine yourself as your target customer and start doing what they would be likely to do, namely, a simple Google search for your business type and location. Take note of the top search results and look for a mix of companies that sell something similar to you, address the same (or similar) target audience, and a mix of both new and more established companies.
It’s also important to keep in mind that there are two main types of competitors:
- Direct competitors that offer the same product or service as you do and are available in the same geographic area.
- Indirect competitors that offer a different product or service, but one that could potentially answer the same customer need as what you offer.
Direct competitors may seem like more of a threat, but don’t discount the indirect competitors. When the market shifts, as it inevitably does, they could easily become more direct competitors.
Research What Products/Services They Offer
Once you know who your competitors are, you’ll want to take a deeper look at the exact product and/or services they offer. You can generally do this by scouring their websites, brochures, social media, and visiting physical stores if they exist. Some things to look out for are the depth of product lines and scope of services, especially to identify where any key products or services may be missing that you can offer. Also look into whether new products are under development or if any patents or licenses may be pending.
How to Find Competitors’ Keywords
You can use tools like BuzzSumo and Ahrefs to research what types of keywords people are searching for to find products and services that you offer and how your competitors are using those keywords. These are powerful competitor analysis tools that can give you great insight into the minds of the target audience - if you know what people are searching for and you can find weaknesses in how your competitors are using (or not using!) the keywords, you can make sure you capture those words on your website and increase your own market share.
Find the Market Share They Own
A good way to measure how strong a competitor may be is by the size of the market share they own. In a saturated market, you may have a number of smaller competitors each with a small piece of the pie. In more of a niche market, you may face fewer competitors but there could be one or two that already have much of the market share. For those with large market share, you may want to analyze what they did to get there and see what you can learn from them. Or, you may decide that there’s already a company with a monopoly so a better strategy for you might be to create a new product line that is more easily differentiated from their offering.
Compare Product Pricing
In many cases, it’s the way you price your product or service that will make or break your business. For this reason, it’s very important to have a solid understanding of how your competitors charge. If you want to charge more than others, you must be prepared with an explanation as to why your product or service is superior and therefore worth the added premium. On the other hand, if you think the existing prices are too high, you can charge less and try to attract a higher volume of sales from people who are more budget-conscious.
In addition to pricing, also note any special perks that your competitors offer such as discounts, referral bonuses or trial periods. You can try to match or beat those special perks in an effort to draw customers away from competitors and towards your business.
Investigate Their Product Placements and Marketing Strategies
As it’s unlikely that your competitors will willingly share their marketing strategy with you, this step of the competitor analysis will require some research on your part. A good place to start is the company’s website and social media accounts. You can learn a lot about their marketing strategies by analyzing the type of information they are posting on social media and what they share on their website. For example, do they have a regularly updated blog section, do they publish ebooks, is there a video section on the site, do they run a podcast, do they have a media kit and links to articles, do they share case studies, etc. You can also identify whether or not they are investing in paid advertising or relying more on organic reach, testimonials and social proof.
If you are dealing with a brick and mortar business, you can go on some field trips and visit competitors’ stores to see exactly how they display their products and whether they are running any sales promotions. Reading customer reviews and the company’s responses to them is another great tactic for understanding key components of their strategies. If there is a particular issue that customers complained about, has the company made appropriate changes to address the issue, for example.
What Channels are they Using for Market Distribution
Especially when dealing with an online business, an important part of your competitor analysis is identifying the channels your competitors are using to market their business, specifically social media channels such as Facebook, Instagram, TikTok, Twitter, LinkedIn, YouTube and Pinterest. To understand the effectiveness of each channel, it’s important to get a sense of engagement rates by looking at the number of followers, posting consistency, as well as the number of comments and shares of posts.
Identify Industry Trends
When thinking about how to do a competitor analysis, it’s important to also look at the big picture and identify trends that are impacting the industry as a whole. You can get this information by doing market research and learning about customers and what they are looking for. The best way to do market research as part of your competitor analysis is to use a mix of customer interviews, surveys and focus groups along with reading company records and reports and industry-specific publications.
Identify their Target Market and Audience
In most cases, you’ll know who your competitors’ target market is because they are more or less the same as yours. Nevertheless, the specific information that you want to know about your competitors’ when it comes to their audience includes: who they are, where they live, what motivates them, what problem are they looking to solve, etc. The more information you can gather about your competitors’ target audience, the better you can understand their needs and how they are or are not being met and what you can do better than your competitors.
Conduct a General SWOT Analysis
A SWOT analysis gives you a deep look into a company’s strengths, weaknesses, opportunities and threats. You don’t need to go into great detail for each competitor, but a simplified SWOT analysis can give you a great overview of where each competitor stands and can help you compare yourself to them.
In a SWOT analysis, strengths and weaknesses are internal elements that the company itself has control over and can take steps to change when necessary. They include things like reputation, products, partnerships, intellectual property, market share, employees and other assets. Opportunities and threats, on the other hand, are external forces that can’t necessarily be influenced in any way by a particular company. Opportunities and threats include competing products, the overall economy and consumer trends, regulations, and market size and demand.
Include PEST Analysis, if Necessary
Sometimes, it’s worth expanding on the opportunities and threats with a deeper look at additional external risk factors that could impact a business. If you see that one of your competitors can’t handle a particular change, it could be an opportunity for you to swoop in and capture some of their market share. A PEST analysis includes:
- Politics - government regulations, political instability, tax and employment laws, and trade restrictions.
- Economics - inflation, interest rates, exchange rates, unemployment rates.
- Social - customer demographics, culture, education levels, motivation behind customer behavior.
- Technological - new technological advancements, technology lifecycle and R&D investments.
Identify their USPs
Every company has its unique selling points that it uses to differentiate itself. In most cases, company’s share their USPs on their website or in their marketing materials so it should be fairly easy to identify how your competitors define what is most unique about them. This information is crucial to informing your own strategy because you will want to have different USPs or prove how your product or service is superior.
Collecting all of the information is only the first step of conducting a competitor analysis. You then need to analyze what you’ve found so that you can use the information to best inform your own strategy. Questions to consider when analyzing the data you’ve gathered include:
- Where is your best option to differentiate yourself from your competitors - is it related to the product itself, marketing efforts, customer experience or something else?
- In what areas are your competitors the weakest?
- What are the major areas of strength and how can you compete in those areas?
- Does there seem to be turnover in the market?
Create a Basic Analysis of Your Company
Once you’ve completed the competitor analysis, your work is not yet done! You must also conduct the same analysis on your own company so that you have what to compare to. Using the same metrics that you used to take stock of each competitor, take a good close look at your own business. Pay.com’s easy-to-use dashboard can help you easily gather historical sales data and information about your customers. Record this information in the same table that you use to track the information about each competitor so that it will be easy for you to see how your company stacks up.
This is a great way to ensure that your USPs are truly unique and stand out from those of your competitors. If you are unsure how to characterize your USPs, start by looking at your competitors’ weaknesses and see whether your company can provide what they are missing.
Each time that you re-evaluate the competitor analysis, you should also re-evaluate the analysis of your own company so that you always have an accurate picture of where you stand relative to your competitors and so that you can continue to evolve and change your strategies as needed.
Competitor Analysis Example
While your competitor analysis will be unique to your company and your industry, it can be helpful to look at an example, such as the one below:
As you can see in the example, the company is compared to a competitor across a number of different metrics making it easy to see where the differences lie. Of course, when you conduct your own competitor analysis, you will have more than one competitor.
Competitor Analysis Template
A competitor analysis can range from fairly simple to many pages of complex analysis. We’ve created a simple competitor analysis template that you can use to get started - you may find that this gives you enough information to help inform your marketing and business strategy or you may find that there are certain areas that require more attention. Either way, we suggest starting with this template and then adapting it to suit your specific needs.