Business planning is essential for your long-term success. If your business is already successful, you will likely attract competition into the industry, as other entrepreneurs seek profitable markets.
To understand the strengths of your own business, you must understand your competition and your positioning. Who competes with you for your customers’ time and money? Are they directly selling competitive products and services, substitutes, or possible substitutes? What are their strengths and weaknesses? How are they positioned in the market?
Your competitive analysis
A good competitive analysis varies according to what industry you’re in and your specific marketing plan and situation. A comprehensive competitive analysis does have some common themes.
Begin by explaining the general nature of competition in your type of business, and how customers seem to choose one provider over another. What might make customers decide? Price or billing rates, reputation, or image and visibility? Are brand names important? How influential is word of mouth in providing long-term satisfied customers?
For example, competition in the restaurant business might depend on reputation and trends in one part of the market and on location and parking in another. For the Internet and Internet service providers, busy signals for dial-up customers might be important. A purchase decision for an automobile may be based on style, or speed, or reputation for reliability.
For many professional service practices, the nature of competition depends on word of mouth because advertising is not completely accepted and therefore not as influential. Is there price competition between accountants, doctors, and lawyers?
How do people choose travel agencies or florists for weddings? Why does someone hire one landscape architect over another? Why would a customer choose Starbucks, a national brand, over the local coffee house? Why select a Dell computer instead of one from H-P or Gateway? What factors make the most difference for your business? Why? This type of information is invaluable in understanding the nature of competition.
Compare your product or service in the light of those factors of competition. How do you stack up against the others? For example:
- As a travel agent, your agency might offer better airline ticketing than others, or perhaps it is located next to a major university and caters to student traffic. Other travel agents might offer better service, better selection, or better connections.
- The computer you sell is faster and better, or perhaps comes in fruity colors. Other computers offer better price or service.
- Your graphic design business might be mid-range in price, but well known for proficiency in creative technical skills.
- Your automobile is safer, or faster, or more economical.
- Your management consulting business is a one-person home office business, but enjoys excellent relationships with major personal computer manufacturers who call on you for work in a vertical market in which you specialize.
In other words, you should know how you are positioned in the market. Why do people buy your product or services instead of the others offered in the same general categories? What benefits do you offer at what price, to whom, and how does your mix compare to others? Think about specific kinds of benefits, features, and market groups, comparing where you think you can show the difference.
Describe each of your major competitors in terms of those same factors. This may include their size, the market share they command, their comparative product quality, their growth, available capital and resources, image, marketing strategy, target markets, or whatever else you consider important.
Make sure you specifically describe the strengths and weaknesses of each competitor, and compare them to your own. Consider their service, pricing, reputation, management, financial position, brand awareness, business development, technology, or other factors that you feel are important. In what segments of the market do they operate? What seems to be their strategy? How much do they impact your business, and what threats and opportunities do they represent?
Finding information on competitors
You can find an amazing wealth of market data on the Internet. The hard part, of course, is sorting through it and knowing what to stress.
Your access to competitive information will vary, depending on where you are and who the competition is. Competitors that are publicly traded may have a significant amount of information available, as regular financial reporting is a requirement of every serious stock market in the world. Wherever your target is listed for public trading, it has to report data.
Competitive information may be limited in situations where your competitors are privately held. If possible, you may want to take on the task of playing the role of a potential customer and gain information from that perspective.
Industry associations, industry publications, media coverage, information from the financial community, and their own marketing materials and websites may be good resources to identify these factors and “rate” the performance and position of each competitor.