Ambitious brands can’t just sit back and wait for competitors to show them the way. Instead, real business success is built upon leadership and proactive effort. The first step a company must take down this path, however, is knowing its competitors. Particularly when expanding into new regions or foreign markets, leaders invest significant time and effort into understanding where they fit in the broader business landscape.
What is a competitive analysis?
A strong, well-crafted competitive analysis is a comprehensive report that determines the state of a company’s market terrain, providing insight into that terrain, and enabling the company’s success. It measures where key players stand within the marketplace and confirms the relative strengths and weaknesses of each.
When and why to perform a competitive analysis
There is really no wrong time to perform a competitive analysis. Regardless of the industry, knowledge of the prevailing market conditions is a crucial asset in any business strategy.
A competitive analysis can help a company’s executives determine exactly where they stand within the industry, and more importantly, determine where they can go moving forward. Particularly when breaking into a new market, or when expanding abroad, success hinges on developing a clear picture of the competition.
Analyzing competitors’ methods can be a significant boon when adapting a company’s current marketing strategies. As companies move into international markets, they need to modify their messaging to fit the new culture, whether that involves a new language or simply new customs. Insight on what their competitors are doing can simplify the company’s website localization, app localization, and brand messaging to ensure that all materials the company produces are properly keyed to fit the target audience.
When companies are planning to develop a new product line, new insight into the competition’s strategies is crucial. While the company is entering territory with which it has no experience, it can learn quite a bit from the strategies that have worked for its competitors. At the same time, seeing areas where the competition has struggled can grant the organization opportunities to create its own stronghold in the market, shoring up those faults and presenting itself as a superior alternative.
Careful observation of competitors’ successful strategies provides a useful guidepost when starting out; however, insight on what is lacking in the industry can bring unexpected benefits. A strong analysis can bring the gaps in the industry to light. For example, by viewing which demographics their competitors are targeting with their marketing strategies, as well as those on which their competitors are not capitalizing, companies can discover pent up demand ripe for fresh supply. Even if the market itself appears to be fully utilized, this sort of research can highlight the ways a company can differentiate itself from the competition.
Questions to ask before performing a competitive analysis
Before diving into the heart of a competitive analysis, companies should keep several questions top of mind. No matter what model of analysis the company chooses, these inquiries can provide valuable insight moving forward:
- What is the goal of this analysis? For a competitive analysis to be worthwhile, the company performing it should articulate an overarching goal. What do they intend to do with the information once it’s been gathered? What sorts of resources can they commit toward making changes once the analysis is complete? What is the intended scope of the analysis?
- Who are the company’s current competitors? Top competitors can range from local mom and pop stores to big box manufacturers, so companies would be wise to investigate both ends of the spectrum. After determining who the primary competition is, companies have essentially two ways to view and group potential competitors:
- Inside Out. Organizations view the competitors from their own perspective, as another key player in the space. Which organizations dominate industry conversations? Whose actions have ripple effects on the market? What strategies are they using to sustain authority?
- Outside In. Organizations view the market from the perspective of a customer, putting themselves in the customer’s shoes. What is appealing about the competitor? Why would a customer choose one over the other? Which demands are not being supplied by the current market?
Based on these and other data, organizations can determine to what degree each competitor contends for the customer’s business.
- What potential is there for new competitors? What is the likelihood of new competitors emerging in the company’s market in the future? Several different factors can come into play here:
- Does the industry have particularly high profit margins?
- How difficult or expensive is entry into the market? Does it require heavy upfront investments, or is startup relatively inexpensive?
- How quickly is the market growing? Is the industry booming at the moment, or are things relatively tame?
- Is the balance of supply and demand favorable to competitors who may want to break into the market? Is there a high demand with a comparatively low supply? If so, chances are good that others will seek to break into the industry in the near future.
- How much competition already exists in the industry? Are there relatively few companies providing these goods and services, or is the market fairly saturated? If there is very little competition now, potential competitors may find the environment inviting to start their own ventures.
Gathering competitive intelligence
When it comes to gathering knowledge on a competitor, several informative avenues are available. Companies can benefit from studying many, or even all, of the following sources:
- Competitor websites. The simplest place to start searching is a visit to the competitor’s website. On what areas does the competitor focus in its own promotional materials? Why would the competitor be focusing so much attention on those areas? What subjects does the competitor avoid? Is there a way for the inquiring company to leverage that information?
- Visits to competitors’ physical locations. Gathering information about a competitor can be as uncomplicated as sending staff to a competitor’s brick and mortar location and observing the strategies it is using to appeal to customers. Investigators should pay attention to the promotional content the competitor displays, the promotions it offers, and the ways service representatives engage clientele. Customer service, variety of inventory, convenience, price—all of these can speak volumes about the competitor’s strategic priorities.
- Competitors’ marketing and advertising campaigns. Generally, companies will do whatever they can in a marketing campaign to emphasize their strengths and downplay their weaknesses. By paying close attention, teams performing a competitive analysis can glean valuable information on value gaps that can be addressed by savvier branding.
- Surveys and studies. Even if some other organization has performed a study on public opinion or market trends, they will present their results in the way that reflects best on them. Company executives who want a clear picture of how the public sees them and their competitors can make sure that they have an accurate view by performing their own studies. This will allow them a look at the current market position, unobscured by other organizations’ bias.
- Online news sources. Potentially the most accessible information, online news sources covering the industry are a wealth of knowledge. Industry journals or websites will often highlight market news, along with partnerships, changes in company leadership, and other insider updates. Several bloggers focus on a specific industry, providing insight into individual events and overarching trends. Beyond that, market analysts often publish reports highlighting statistics, financial data, and other quantifiable results.
Analyzing the information
It’s not enough to simply gather all of this material. Data will do a company no good until leaders find a way to leverage it. The following frameworks are the perfect place to start that process.
The SWOT Analysis
The SWOT analysis model has been the gold standard for competitive analyses since first put put forward by Albert S. Humphrey in the 1960s. In a SWOT analysis, participants begin with a square divided into four quadrants. The two columns are labeled “helpful” and “harmful,” while the rows are labeled “external origin” and “internal origin.” Following this grid, the quadrants are laid out as follows:
- Strengths (Helpful, Internal origin)
- Weaknesses (Harmful, Internal origin)
- Opportunities (Helpful, External origin)
- Threats (Harmful, External origin)
Those performing the analysis then sort the market insights and competitive intelligence they have gathered into the corresponding sections. At this point, if the quadrants seem a bit crowded, participants may decide to prune factors that seem less relevant to the task at hand.
As practitioners complete the exercise, they should ask themselves even more questions to dig down to the roots of each matter. A few thoughts to keep in mind might include the following:
- What are the competitor’s strengths? Chances are high that a company’s competitor does at least a few things better than the company itself. Otherwise, there would be no competition. Does the competitor have lower prices? Better service? Is it more convenient to the customer, either by physical location or online accessibility? Does it have a wider variety in its inventory? What does it do particularly well?
- What are the competitor’s weaknesses? Along the same line of thinking, each company has areas where it struggles. In what areas does the company excel where its competitor fares poorly? What vulnerabilities might the two have in common?
- What objectives has the competitor put forward? What goals does the competitor seem to be focusing on? How successful has it been in reaching those objectives?
- What marketing strategies is the competitor using? Company executives should study the marketing strategies their competitors are using and determine where the competitors are succeeding and where they are failing. This could provide valuable information on gaps in the market that the company can fill.
- In what ways can the company take market share away from its competitors? What strategies can the company employ to capitalize on the gaps left by its competitor? How can the company appeal to those customers who are not totally satisfied with the competitor?
- If the company is entering a new market, how will the competitor respond? This can depend on the relative size of the company entering the marketplace. Sometimes, a large enough competitor will not see a new company entering its marketplace as a threat. In other scenarios, however, the established company might act swiftly to prevent competition from growing too much. How would a company handle this situation?
After gathering information, analysts should then organize and classify each piece of information as a Strength, Weakness, Opportunity, or Threat. Weighing all factors together, they can determine patterns and areas of overlap, company strengths that intersect with competitor weaknesses and vice versa. With this information, they can then build new marketing strategies to make use of situations where their company holds the advantage and mitigate areas where the company’s competitors are ahead.
Alternate approaches to a competitive analysis
Many companies have sworn by the SWOT analysis over the years. The initial purpose of this exercise was to “bulletproof” the business by eliminating threats and weaknesses while enhancing strengths and opportunities. While this is certainly a worthy goal, this method often leaves companies stuck, unable to move forward because they are so focused on eliminating every threat and weakness. As a result, alternative exercises may hold more value.
It can be difficult to clearly compare competing companies based on data that is not naturally quantifiable. Creating competitor arrays is one technique that companies can utilize to simplify this comparison.
To create a competitor array, the person or group performing the analysis should create a list of competitors, along with a list of key success factors for the industry. Then, they take the list of key success factors and give each a weight—the higher the number, the more important the factor. The sum of all of these weights should add up to 1.
Next, participants give each each competitor a rating in each key success factor. (Any scale can work, but a scale of 1–10 is a simple option.) In order to give the proper magnitude to each factor, multiply these ratings by their corresponding weights. These results can be displayed in a simple table, with competitors listed along one axis and success factors displayed along the other. An example, using arbitrary numbers as filler, can be seen here:
|Key Success Factor||Weight||Competitor #1 Rating||Competitor #1 Rating— Weighted||Competitor #2 Rating||Competitor #2 Rating— Weighted||Competitor #3 Rating||Competitor #3 Rating— Weighted|
|Success Factor 1||.3||5||1.5||9||2.7||8||2.4|
|Success Factor 2||.3||2||0.6||5||1.5||8||2.4|
|Success Factor 3||.2||8||1.6||4||0.8||1||0.2|
|Success Factor 4||.1||6||0.6||5||0.5||2||0.2|
|Success Factor 5||.1||1||0.1||3||0.3||1||0.1|
This main method presents valuable, scannable conclusions, but there’s always room for enhancement. Adding another column to display their own company will provide analysts insight into how their company compares. Meanwhile, an additional column displaying a series of benchmarks—results that could be expected if an ideal company is perfectly following all of the industry’s best practices—can provide a set of goals to which the company can aspire.
The SOAR method of analysis focuses on more positive aspects. While a SWOT analysis targets both positive and negative factors, those subscribing to the SOAR philosophy feel that delving into the weaknesses and threats too often causes more harm than good, summoning negative attitudes and triggering poor performance. Instead, SOAR’s categories are as follows:
Within a SOAR analysis, companies focus specifically on the factors they want to move forward and the outcomes they most desire. After filling out each of these categories, the SOAR method encourages participants to collaborate by following the five I’s:
- Initiate. The company’s leadership or a central planning team decide exactly how to implement SOAR within their organization. Together, they identify the relevant stakeholders and determine how to engage everyone involved in the process.
- Inquire. At this point, team members look into the values, mission, vision, and other aspects of the organization and determine the outcome they are seeking. They explore the organization as it currently stands, as well as potential end goals.
- Imagine. The team looks at the combination of Strengths and Opportunities to build a more solid view of what is to come. Using positive images of the future, the team builds a vision for actions to pursue and their desired results. Participants then grow this vision into inspiration and excitement to move plans forward.
- Innovate. Using the new vision and inspiration they have developed, the team identifies and prioritizes strategic initiatives, leading to new or changed processes, systems, and culture within the organization in an effort to achieve the new goals. The target result is the use of their Strengths and Opportunities to achieve their Aspirations and Results.
- Inspire and implement. Because the relevant stakeholders have been involved from the beginning, each person should be connected to their assigned tasks, how to do them, and why those tasks matter. In the ideal circumstance, this will motivate the people involved to contribute to the group’s goals, both improving the organization’s final results and strengthening the team’s internal bonds.
While SOAR brings a more positive focus, critics of the method view it as overly idealistic and indirect. The five I’s are rather vague and not always clear when it comes to concrete actions the company can take. Still, the exercise has its place—particularly when it comes to generating bold ideas.
The SCOPE method builds on top of the foundation first laid out in SWOT. Using the factors highlighted in SCOPE—Situation, Core Competencies, Obstacles, Prospects, and Expectations—companies can see where internal and external influences align and use them to actively pursue strategic advantage.
According to John Webb, who first put forward the SCOPE Planning model, the key factors in a SCOPE analysis are as follows:
- Situation. The Situation is an explanation of exactly how things currently stand. It takes a rear-view perspective and includes both internal and external factors that have brought the business to its current state.
- Core Competencies. These are specific aspects of the business that the company considers to be central to its operating process. These Core Competencies provide the basis for the company to achieve and sustain its competitive advantage. Each Core Competency must fulfill three criteria:
- They are unique to the business—not easily imitated by competitors.
- They can be leveraged across products and markets.
- They add value by contributing to the end consumer’s benefits.
- Obstacles. These may be internal or external. Obstacles are comprised of issues that must be addressed in order for the business to realize future Prospects.
- Prospects. Prospects are opportunities for the business to create additional sales and profits through its Core Competencies in the context of the Situation. Determining a company’s Prospects allows the business to set goals and develop strategies.
- Expectations. These are developments the company foresees moving forward which could have a direct or indirect influence on its plan. These can be either quantifiable or subjective predictions.
The SCOPE method is intended to be an ongoing, dynamic process, rather than a one-time event. Within the SCOPE model, each category is interlinked and connected to the others.
Regardless of the specific method each company chooses, the benefits to performing regular competitive analyses are undeniable.
As Northwestern University’s Dr. Philip Kotler famously said, “Poor firms ignore their competitors; average firms copy their competitors; winning firms lead their competitors.” Markets are constantly evolving, and no business operates in a vacuum. Rather than waiting for the competition to make a move and simply reacting, organizations who have spent the effort to build intelligence about the market can be proactive and drive the industry.
Sustainable success requires active involvement across a business. Company leaders should get people at all levels of management excited about their company’s placement and branding. To ensure a successful analysis, they should recruit resources from both inside and outside the company to add depth and authority to the findings.
Each industry is different, so those involved should focus on the questions that would provide the most actionable results. Different departments will have different perspectives, so it’s important to get people from all areas of the company involved.
Once the data is gathered, company leaders must prioritize translating that information into insights, which they can then grow into strategic actions to drive and shape the market. By knowing the competition, company executives have a clearer picture of their own strengths and weaknesses. This new insight provides the opportunity to leverage their assets and shore up holes in the company structure, setting themselves up for success moving forward.