The series “How To Conduct Market Research For Your SME” is intended to help you understand market research as an important process for your business and what steps you need to undertake to conduct a successful market research process for your SME. In Part 1, we discussed the first major step in market research – Country Analysis. Part 2 was about the importance and the framework of Industry Analysis. Today, in the last part of the series, Part 3, we’re going to discuss Competitor Analysis and what you need to execute it successfully.
When you start a business, you have to know what your place in the marketplace is. To be aware of your place is to know your competitor’s position too. Researching your competitors means that you can easily find what are their strengths and weaknesses. As a result, it will help you develop strategies that can enhance your competitive advantage.
Competition analysis is one of the most important segments of a successful market research process. With that in mind, in part 3 of our “How to Conduct Market Research for Your SME” series we want to discuss competitive research in the marketplace and how to execute it successfully.
Every business that offers the same or similar product or service as yours within your geographic position is your direct competitor in the marketplace. Other companies that offer substitute products that are related to your product and service are considered indirect competitors. Indirect competitors may satisfy your target customer needs, but with a product that is different from yours. As a result, you need to constantly watch their activities because they easily can decide to enter your target market and vice versa.
Why is competitor analysis important?
Because you need to create and keep a competitive advantage in the marketplace. To do that successfully, you need to own detailed understanding and information about your competitors. A detailed competitor analysis covers:
- How your existing and potential clients look at the competition;
- Competitor strengths and weaknesses;
- Method on how to use the information to develop a successful strategy.
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Do I need to analyze every competitor?
If you want to work in a market with a lot of competitors, the task of analyzing them becomes hard. The 80/20 rule (Pareto principle) becomes practical in these situations, as it is hard to collect and maintain information about hundreds and thousands of competitors. In markets with too many competitors, it is probable that 80% of the market revenues are earned by 20% of the competitors. That 20% are the ones that you need to keep an eye on.
Conducting competitor analysis
A successful competitor analysis usually requires 4 key steps:
- Conducting Research,
- Gathering of Competitive Information,
- Analyzing the Information and
- Determining Your Position.
Before you decide if you want to do your competitive research alone, you need to know that obtaining valuable information about your competition is not an easy task. Yes, there is a lot of information available, but the key is to find the right one that can propel your business to the next level. A comprehensive competitor analysis should give you answers to the following questions:
- Who are my competitors and what products do they offer?
- Are they making a profit?
- Do their businesses expand? Or they scale down?
- What is positive about them in my customer’s eyes?
- Negative about them in my customer’s eyes?
- What makes my business different from my competitors?
- Do I have any competitive advantage over my competitors?
- What are their marketing strategies?
- Their product promotion strategy?
- Do they operate in my geographic area?
- What is their pricing system?
- Their market share?
- What is their total sales volume in the market?
- Their growth rate?
- How good is their customer service?
- Is their product better in quality than mine?
- How many employees do they have?
- What kind of resources do they own?
Gathering information about competitors
In order to successfully gather information about your competitors, you need to find the right sources of information first. For instance, there are several secondary sources that can do the job like marketing reports. Marketing reports that are offered to the public or for general use are like a pool of information and data.
You may want to look into competitor advertising and branding campaigns too. The advertising campaigns of your competitors can show their promotional budget and their branding plan.
Sales brochures are another valuable data pool too. Owning the latest sales brochures about your market can give you a lot of information. For example, information about how your competitors are positioning themselves in the market and how they use their product features to sell successfully.
Moreover, magazines are also an excellent source of information that you can use to get a grasp of the biggest competitors in your market, what are their plans. Furthermore, they can provide you information about what are their new products and innovations that they offer in the marketplace.
Reference books and databases are also a valuable market information source that is available online and in libraries. This includes:
- Government sources;
- Commercial data sources;
- Database directories;
- State institution publications.
If your competitors are a publicly held company, their annual reports have to be considered if you want to collect valuable competitive data. Annual reports can give you financial information, information about their sales volume, their increase in revenue as well as their market share.
Analyzing the competitive information
When you know you have every information that you need for your competitors, it is time to analyze it. The purpose of this analysis is to discover product information, market shares, marketing strategies, as well as identify strengths and weaknesses.
When it comes to product evaluation, customer feedback is the most important source of information. The evaluation factors that you need to look into are:
- Product quality;
- Durability and Maintenance;
- Design and perceived value;
- Product’s social image.
Either the products of your competitors have these features or they don’t. It’s really straightforward. Next, you should evaluate your own product and see how you stand with the competition. Which features are unique about your product?
Also, evaluate yours and your competitor’s pricing system. Just because you offer the same or similar product in the market does not mean that you will offer the same price. Pricing is affected by production costs, packaging costs, shipping costs, and marketing costs. If your competitor’s product is exactly the same as yours but they still want to offer it at a much lower price, it means that they might be in financial trouble. That’s extremely valuable information that you can use to position yourself even stronger in the marketplace.
The best indicator of a company’s sales performance is the market share. For example, your competition has a product that is lower in quality than your product. If the competition generates enough sales, they can define product standards in the industry and influence perceptions about the product or service too.
Objectives and strategies
For each of your main competitors you need to determine their market goals and what strategies do they use to achieve them. Do they try to maintain or increase their market share? Maximizing short-term or long-term profit? Do they want to introduce innovation in the market? Or they want to become market leaders?
Once you know what your competitors want to achieve, you will have to assess what are the strategies that they use so you can counter-punch them with your own strategy.
Identifying strengths and weaknesses
To develop a thorough strategy for your SME, you need to make a pragmatic assessment of your competitor’s strengths and weaknesses. Why are some competitors more successful in the market than you?
To conclude, you need to do competitor analysis on a regular basis if you want to know how the competition operates their businesses and how to beat them in the process. Competitor analysis is a never-ending process. Markets change quickly, and so does the competition. New players come and go in the market, and the economy falls and gets back up. You can evaluate your position in the marketplace only if you understand your competition.
Thank you for your attention. If you are an Entrepreneur that wants to start a business or own a company that wants to expand, wants to successfully identify trends and competitors and better understand his clients but still not sure where to begin, BizzBee is here to guide you through the steps that will help you differentiate from your competition. Our expertise is in working with Entrepreneurs and Start-ups and we can guide you throughout the entire process.
Danco is a serial entrepreneur, founder and CEO of BizzBee Solutions, proud father of a 3-year-old and a burger enthusiast. He is inspired by growth and goes above and beyond to make it possible – whether it comes to his 300+ clients or his people. Eager to learn more? Follow Danco on LinkedIn and Facebook.