Competition in the market is inevitable. In fact, healthy competition among various businesses is necessary for the growth of the economy. However, to grow and stay ahead, every firm needs to know how its competitors are progressing. Even before one sets up a business, it is pertinent to research the competition in the industry. In addition to this, organizations also need to understand and analyze the various management strategies adopted by their competitors. It is termed competitor analysis.
This blog provides a step-by-step guide to performing competitor analysis and tells you some effective competitive analysis strategies.
What is Competitor Analysis?
Competitor analysis forms a part of strategic management. It is both a defensive and offensive technique that allows businesses to figure out threats and opportunities in the market. In simple words, competitor analysis is a process, strategy, or technique that involves analyzing competitive elements in the market. It focuses on figuring out the competitors in the industry, analyzing their products and services, marketing and sales techniques, strengths and weaknesses, and leveraging the same to chalk out business strategies to earn profits.
Why is Competitor Analysis Important?
Competitor analysis has become a pivotal activity for nearly all businesses due to cut-throat competition in the market. Here are some of the reasons why competitor analysis is crucial for your business:
1. Identifying Key Competitors
Competitive analysis helps businesses figure out the existing and potential competitors in the market. One can also identify various factors that regulate competition in the industry with the help of competitive analysis.
2. Work on Your USP
The primary purpose of competitor analysis is to stay ahead of your competitors and earn maximum profits. Since many firms deal in similar goods and services, a USP is crucial for your business. When you have a list of your competitors’ strengths and weaknesses, you can use it to your advantage to build a USP for your brand. You need to figure out what is lacking in other brands that you can improve.
3. Learn from mistakes
One of the significant advantages of competitor analysis is that you get to learn from the mistakes made by your competitors, especially if you are a newly established business or are building a product for an unconventional sector. A comprehensive study of your competitors’ strategies will help you understand the mistakes you need to avoid and how you can enhance the quality of products or services.
4. Assessing own strengths and weaknesses
Competitor analysis involves assessing the strengths and weaknesses of the competitor. Businesses utilize market research to compare the strong and weak points of their competitors. It helps them understand the areas they need to work on and prepare strategies accordingly.
5. Establishing benchmarks
As per an article on the Forbes website, competitor analysis is crucial for establishing various benchmarks. It means finding reference points through which you can measure your growth. Setting up benchmarks will be highly beneficial if you are starting a business and wish to research or learn from competitors or leading brands. When you set a target for your business and compare it with a reference point, it is likely to enhance the growth of your business.
Steps to Perform Competitor Analysis.
Before performing competitor analysis, it is crucial to be familiar with the essential factors that regulate competition. One of the most critical concepts of competitor analysis is Porter’s five forces. It discusses competitive rivalry as an essential element of competitor analysis. According to Harvard Business Review, the competition in the market is due to the presence of other similar businesses and the underlying economics. The following are the five forces that control competition in the market.
1. Supplier Power
It suggests the potential of the suppliers to increase the price of labor, raw material, and other inputs that ultimately causes a rise in the cost of production for the businesses.
2. Buyer Power
The bargaining power of the customer or the buyer power refers to the ability of the customers to increase or decrease the price of products through a change in demand.
3. Competitive Rivalry
It gives you an understanding of the competition in the market. Competitive rivalry refers to the number of competitors in the market, where your product stands compared to that of your competitors, and how other businesses are trying to eliminate competition to gain a more significant share of the market profits.
4. The Threat of Substitution
The fear of some other business or product replacing you in the market is constant. Therefore, your competitor analysis strategy must look at the similar products available in the market that work as substitutes and their pricing strategy.
5. New Entry in The Market
Just like the substitution of products, there is also a threat of new entries in the industry that creates competition. An easy entry into the market can pose a threat of replacement by rival businesses.
Therefore, to perform competitive analysis, it is quintessential to consider all the above factors.
Along with this, you can follow the below-given steps for competitive analysis.
1. Finding out competitors and profiling them
The first step to conducting competitive analysis is to figure out direct and indirect competitors of the firm. Your direct competitors indulge in providing similar products or services and cater to the same target audience. On the other hand, indirect competitors do business in the same niche but have a different customer base. The easiest way to identify your CV competition is to run a Google search with relevant keywords. You can also use various tools like SpyFy, Google Trends, and SEMrush to find your competitors.
2. Research Your Competitor’s Website and Social Media Pages
Once you know who your competitors are, the next step is to determine their strengths and weaknesses and use them to your advantage. You can observe their marketing and sales strategies, social media campaigns, interaction with customers to get an idea about how their teams function. One of the best ways to do this is to read the customer reviews available on their website, social media pages, YouTube, or Google.
3. Determining opportunities and threats and in the market
The next step is to determine opportunities and threats that impact market competition. You can consider Porter’s five forces to figure out the opportunities in the market.
Various Strategies for Competitor Analysis
Follow are the three most beneficial strategies for competitor analysis:
1. Industry Approach
The industry-based competitive analysis considers firms that engage in similar products or services which act as substitutes for each other. It also focuses on factors like entry barriers and vertical integrations. However, the businesses that form a part of an industry usually price their products or services at similar rates. In such cases, gaining profits mostly depends on customer loyalty. The industry approach in competitor analysis helps firms identify areas where they can decrease the prices of their products or services by reducing the cost of production.
2. Market Approach
The market-based analysis only considers direct competitors in the market. It does not take into account other competitive elements. The market-based research focuses on analyzing strategies and identifying the strengths and weaknesses of direct competitors.
3. SWOT Analysis
SWOT is the abbreviation for strengths, weaknesses, opportunities, and threats. SWOT analysis is a strategy that focuses on internal factors like strengths and weaknesses of the firm and external factors like opportunities and threats.
How Can You Learn To Do Competitor Analysis?
Competitor analysis or market analysis is one of the most sought-after jobs in the USA. According to the US News and World Report ranking, market research analyst was the 9th best business job in the US in 2019. Moreover, the average salary of a market research analyst in the US is $63,500 annually. However, the role of a market research analyst is not easy as it requires a lot of research and experience. The growth of businesses is often based on competitor analysis. Therefore, research analysts must have a great understanding of the business industry. They should also be aware of various business trends and strategies. One of the best ways to learn competitive analysis is to pursue an MBA program.
You can join the MBA (Global) course by Deakin Business School offered by upGrad. It will help you learn the basics of business strategy and the fundamentals of marketing. In addition to this, you will also get opportunities to work on practical assignments and receive 360-degree mentorship from industry professionals.
Businesses constantly strive to improve their marketing and sales strategies to stay ahead of their competitors and maximize profits. Pursuing an MBA degree can be your best bet to learn about the market in-depth and perform competitor analysis successfully.