Competitive analysis: What is it and how to do it

No matter what kind of business you run, your customers may consider many options for buying what you sell—whether it's from similar businesses in your area or a distant, online competitor. Consider that an exciting challenge: Knowing the playing field can help you stay ahead of competitors and position yourself to stand out from the crowd—and that's where doing a competitive analysis proves valuable. 

What is a competitive analysis?

A competitive analysis is a process to help you understand who your most important competitors are, what products and services they sell, and their sales and marketing strategies. It can allow you to see how your business compares to similar ones and make more informed decisions about how to stand out. It's easy to get carried away with enthusiasm for your business ideas, but customers have to be excited about your brand, products or services, too, or they won't be willing to buy.

"Many small business founders forget about how they are going to be distinct. How are they different from their competition?" says Dave McLurg, Co-founder and Chairman of the venture capital firm Griffin Phoenix Capital in Scottsdale, Arizona. "A competitive analysis will help you find out who your competitors in the marketplace are and what they do—and then take a look at the key elements of how you differentiate yourself."

How can a competitive analysis help you?

A competitive analysis can give insight into the competitive landscape where you operate your business. It will help you identify:

• Common practices in your industry. Knowing how competitors handle factors such as post-sale interactions, like returned purchases, and how quickly they serve customers, may point you to opportunities to stand out by offering better options. Be sure to look into the reasons certain practices may be sub-par. For instance, if customer service is poor in your industry, is it because of a lack of training, which is fixable, or the labor shortage, which could be harder for you to resolve?

• Trends that may affect your industry in the future. For example, if your competitors are moving the process of returning purchases online, you'll want to consider that in your plans.

• Gaps in the marketplace. If no one is addressing certain needs among your customers, you may be able to provide a solution. "You've got to determine if it's possible in the marketplace," says McLurg. If an existing challenge will be too costly to tackle, you may need to look for other gaps to address so you can stand out.

• Whether your hunches are correct. "A lot of business owners make assumptions that their product is one the marketplace wants, and people will pay a certain price for the product, and you want to validate those assumptions as fast as you can," says McLurg. "Many businesses fail because they don't do that homework."

What should be included in a competitive analysis?

There's no one way to do a competitive analysis. Generally, you'll want to research and determine:

• Who your top five to seven competitors are
• What they sell: Take stock of your rivals' competing products and services, the features of their offerings, how these solve customers' problems, and the target audience.
• How they market it: Determine where they are marketing their offerings, their advertising strategies and their most important marketing channels.
• What their pricing and shipping policies are: How do their prices stack up against other rivals? Have they positioned themselves at the high end, the low end or somewhere in between?
• How they use social media: Check out the platforms they are on, their posts and their engagement. Make sure you consider their blogging strategy, ebooks and white papers, videos, podcasts and other formats they use.
• Plus, any other factors that help you determine their strengths and weaknesses: Look into awards and distinctions they've won and check out comments their customers made for insights to where they stand out and where there are opportunities for you to offer better alternatives.

Let's take a deeper dive:

Competitors

You'll want to identify the major players in your industry who run both brick-and-mortar businesses in your geographic area and online rivals targeting the same customers. Make sure they are very similar for the best insights. If, for instance, you sell gourmet sandwiches to customers who value quality above all, analyze what other high-end sandwich shops are doing—and skip the fast-food chains where speed, convenience and price are paramount. Gather details such as their market share, date founded, number of employees and number of customers if you can find it.

Competing products and services

Take stock of what offerings your rivals are selling, and which ones are most popular. You can do your research through on-the-ground methods, like purchasing from them, or through online research, which may point you to items that are "going fast" or have many positive reviews.

Marketing and sales channels

There are many ways competitors may spread the word about what they sell. These may include traditional advertising and marketing methods such as print advertising, billboards, and local TV commercials; a public relations campaign featuring them in local media; content marketing through a blog on their website or email newsletter; or paid online marketing through search engines or a platform such as Amazon, where you'll gain insights about rival brands through online reviews. Taking stock of the methods used will likely spark some creative ideas for your own business.

Social media

Chances are some of your competitors use social media marketing, whether its YouTube, Instagram, TikTok, or other platforms. They may use organic, free postings and paid promotions. By searching for their brands on popular channels, you'll get an idea of where you need to show up and catch customers' attention.

Be sure to look at social media comments about their brands and "likes." This may point you to untapped opportunities to excel and differentiate yourself. For instance, even if your rivals are doing a great job of marketing themselves on social media, they may receive a lot of online complaints about the timeliness of their deliveries. That could mean you stand out simply by delivering your orders on time.

Other factors

If your competitors receive third-party validation for the work they do—such as awards for outstanding customer service or innovation—this gives you an idea of the standards you need to meet to compete with them. Also look for certifications they have received for meeting environmental standards, running an equitable workplace, or other factors that customers may value. Usually, you can find these accolades on their websites or in their press releases online.

How to organize a competitive analysis

To make sure your competitive analysis is thorough and organized, use a spreadsheet to compile your findings.

• In a basic competitive analysis, list all your competitors who offer a similar product by brand name down the left margin, and then, across the top, list areas of comparison—such as product features, quality, pricing, ease of use, marketing strategies and customer service.
• Make notes on the sheet to compare how rivals handle each of these key areas. For instance, under marketing, you might note "email and website" for one competitor and "YouTube" for another.

Once you're done, you can use your findings to identify gaps to address and come up with a unique strategy for establishing or growing your business.

When should you do a competitive analysis?

A competitive analysis can come in handy if you start a new business and are looking for a unique niche or are looking to stay on top of trends that may influence an existing business's future growth.

It can also be helpful if your sales have suddenly slowed, and you're not sure why. By studying what both successful and unsuccessful competitors do, you may be able to find areas of improvement for your business.

A competitive analysis can also help if you're concerned about staying ahead of trends, such as artificial intelligence, that could either help your business grow or make your business less relevant in the future—while you still have time to do something about it.

Use a competitive analysis to position your business for the future

There's no one-size-fits-all way to create a competitive analysis, but by understanding the market for what you sell—and potentially where you could stand out—you can avoid a dead end and potentially find niches to better position your business for growth.