Running a business takes a lot of work.
Aside from fulfilling customer orders, you should also analyze your competitors’ products, unique selling points (USPs), and marketing campaigns, among other factors, to maximize opportunities and keep your business relevant.
So, how well do you know your industry? Competitor analysis involves researching market competitors to gain insight into their operations, from sales and marketing to product development.
Monitoring and analyzing competitors is essential to creating effective business strategies. Competitor analysis can provide critical insights into your market, financial, and operational performance and extract key performance indicators (KPIs) to help guide and track your company's growth.
KPIs measure a business's performance based on set targets and goals. Companies generally track KPIs using analytics software and tools, but it also helps to know what you are dealing with. Below are essential metrics and KPIs involved in competitor analysis.
While subjective, qualitative metrics such as customer feedback that competitors receive on their online channels provide a general overview of their performance. Ratings and reviews can reveal what works with their operations (and what does not), which you can take advantage of to improve your own. This data can help you improve customer lifetime value and retention.
Your competitors' prices can give you an idea of their overall health. For instance, value changes can indicate the success of their launches—price deductions on new products may mean that it is not performing as expected. Moreover, their prices can help you identify their target market segments.
An accurate way to assess your competitors' performance is by analyzing their revenue growth. However, this metric can be challenging to acquire. If your competitors are public entities, they typically provide annual audit reports for investors. Meanwhile, private companies might state their figures in blog posts and interviews, so research them thoroughly.
Well-implemented search engine optimization (SEO) can significantly contribute to brand visibility and revenue growth, hence the importance of tracking this metric. Analyze competitors' targeted keywords—if they have not used some brand-relevant ones, you can be the first to do so.
With some KPIs in mind, it is time to start figuring out your competitors. You can leverage analytics tools to make the process more efficient, but here are some fundamental practices if you want a more hands-on approach to competitor analysis.
Identifying competitors can give an idea of whom and how many businesses you are dealing with. It may sound straightforward, but you need to take note of some essential considerations.
For one, depending on the industry, you might have dozens, if not hundreds, of similar brands with varying market shares worldwide and within your locality, especially if you are a brick-and-mortar establishment. Analyzing each would not be feasible, so you need to categorize them depending on your objectives.
You need to take note of three main competitor types, namely:
Direct – Located in the same area as your business, they offer similar products and target similar customers.
Indirect – They offer different products and target other customers but are in the same industry category. A good example of this is women’s apparel vs. children’s clothing.
Substitute – They target similar customers and offer different product solutions that may replace yours.
You can focus on the top 10 businesses from each type and create a report to analyze them closely. Once you have listed them, jot down relevant facts about each competitor to determine how they can affect your business.
Perform a strengths, weaknesses, opportunities, and threats (SWOT) analysis of your competitor's position to develop appropriate strategies. Generally, your research should cover their sales, pricing, marketing, and customer experience.
For each area, determine your competitors' strengths—what are they doing right? What makes their brand distinct from others? Consider their weaknesses as well to help you avoid the same mistakes. Next, determine internal and external factors that can give them an advantage and those that can set them back.
Ultimately, the analysis should give an idea about your competitors' current performance and prospects. Comparing their results with yours can help you determine what to replicate and avoid, what opportunities to leverage, and how to minimize risks.
Online presence is becoming an increasingly significant aspect of commerce. Seventy-seven percent of small and medium enterprises (SMEs) agree that it significantly helps customer acquisition. Meanwhile, 63% claim it improves enterprise image.
These figures emphasize the importance of analyzing your competitors' online presence and using it to improve your social media channels and e-commerce site. Analyze their content and determine opportunities that can help you outperform them with your own.
For instance, do most of your competitors lack thought leadership through industry-relevant articles? If so, consider creating a blog page and leveraging effective content marketing to maximize the digital space's opportunities. You can also use emerging formats such as podcasts and short-form videos to give your website an edge over theirs.
Pricing is a factor that can make or break customer support, so it is essential to maintain competitiveness in this regard. Analyzing market competitors can provide benchmarks on what customers are willing to pay for your goods. It can also inform you about their specific market targets and pricing strategies.
As mentioned, you generally want your prices to be close to similar brands, as higher figures might drive customers away. Of course, lower prices do not guarantee better sales and brand loyalty. Significantly reducing prices may cause customers to think of your brand as low-quality, as is typically the case with luxury products like jewelry.
Communicate product value through their prices without sacrificing profits, but keep them generally lower than most competitors to avoid getting overlooked in the market.
Competitor analysis is a crucial practice to maximize your company's potential. You might compete with hundreds of businesses in your industry and location, so standing out to customers is vital. While this strategy can be challenging, leveraging the essential metrics and KPIs above and following tried-and-tested competitor analysis practices can boost your operations.
In today's age, where starting a business is easier than ever, it can be challenging to stay afloat, especially if your brand is new. So, keep your competitors in check, find out what works for them and the opportunities they have missed, and use your findings to your advantage.
Luke Fitzpatrick has been published in Forbes, Yahoo! News and Influencive. He is also a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program. You can connect with him on LinkedIn.