Know Your Competition¹
Every business has competitors. Understanding the strengths and weaknesses of your competition, (or potential competition) is critical to business survival and success. While you don't have to hire an ex-CIA operative to understand your competition, you do need to assess the competition thoroughly, methodically, and regularly even if you run a small business. (In fact, small businesses can be vulnerable to competition, especially when new companies enter a marketplace.)
Competitive analysis can be incredibly complicated and time-consuming, but it doesn't have to be. Let's look at a basic process for identifying, analyzing, and determining the strengths and weaknesses of your competition.
Create Basic Profiles
The process starts with developing a basic profile of each of your current competitors. First identify your major competitors. For example, if you run a bookstore, you may have three competing bookstores in your town. Major online bookstores are also competitors, but thoroughly analyzing those companies will be less valuable (unless you decide you would like to sell books online as well). To make the process easier, stick to analyzing companies you directly compete with; if you run a law firm, you compete (for the most part) with other law firms in your area. If you run a retail clothing store, you compete with other small and large clothing retailers in your area. (Again, you also compete with online retailers, but there is relatively less you can do about that type of competition, other than to work hard to compete in other ways: customer service, friendly salespersons, convenient hours, hard to find items, etc.)
Once you identify your main competition, answer these questions about each company. Be objective; it's easy to identify weaknesses in your competition, but less easy (and a lot less fun) to recognize where they may currently outperform you:
- What are their strengths? (Price, service, convenience, extensive inventory, etc.; these are areas where you may be vulnerable.)
- What are their weaknesses? (Weaknesses are opportunities you should take advantage of.)
- What are their basic objectives? Do they seek to gain market share? Do they attempt to capture premium clients? See your industry through their eyes. What are they trying to achieve?
- What strategies do they use? (Marketing, advertising, public relations, etc.) How could they take market share away from your business?
- If you change or add products and services, how will they respond?
While the above may seem like a lot of information to compile, in reality the process is fairly easy. You should already have a feel for strengths and weaknesses based on what your customers tell you and why some of your customers take their business elsewhere.
You also have other options:
- Check their websites. Much of the information you need about products, services, prices, and objectives should be readily available, if that information is not available, you just identified a weakness.
- Direct observation. Visit their stores. Check out their brochures and other promotional literature. Have friends call and ask for information.
- Check out marketing and advertising campaigns. How a company advertises provides a great opportunity to uncover the objectives and strategies of that business. You can quickly determine how the company positions itself, who it markets to, and what strategies it employs to reach potential customers and how they differentiate their business from yours. Often you can determine how a competitor perceives your business by evaluating their advertising: if they focus on low prices, they may feel you are vulnerable based on price. Or, if they focus on promoting outstanding service, they may feel your business provides relatively poor service. Analyze competitor's advertising not only to understand their objectives but also to understand how they perceive you.
- Internet searches. Search for news, public relations, and other mentions of your competition. Make sure you search blogs and Twitter feeds as well as review and recommendation sites like Yelp.com. While most of the information you find will be anecdotal and based on the opinion of the few, you may get a sense of how at least some consumers perceive your competition. Plus you may also get a heads-up about expansion plans, new markets they intend to enter, changes in management, etc.
Competitive analysis does more than help you understand your competition; it can also help you identify changes you should make to your business strategies. Learn from competitor strengths, take advantage of competitors' weaknesses, and apply the same analysis to your own business. You might be surprised by what you can learn about your business by evaluating other businesses.
Identify Potential Competition
It can be tough to predict when and where new competitors may pop up. For starters, do regular internet searches about your industry, your products, your services, and your target market. (Press releases are great ways to sniff out future intentions.)
There are other ways to predict when competition may enter your space. Think about your business and your industry; if the following conditions exist, competition is likely to pop up sooner rather than later:
- The industry enjoys high profit margins
- Entering the market is relatively easy and inexpensive
- You serve a growing market (the more rapidly-growing, the greater the risk of competition)
- Supply is low and demand is high
- Very little competition exists; in effect there is "room for everyone" currently in your market
Economists often say, "Excess profits breed ruinous competition." If serving your market seems easy, assume competitors will enter your space in an attempt to siphon off some of your customers and your profits.