Whether pitching your company for funding from startup investors or putting together a business plan to present to the bank, building a competitive analysis is a typical exercise when you launch a business. On that plan, you'll always see competitors' names, customers' demographics and pricing strategies, and you may even plot them nicely on a graph to show where your brand sits within the competitive landscape.
But, far too often, the competitive analysis is just that — an exercise — and it should be much, much more because understanding the competition and having valuable insights to adjust your own business strategy has never been more important.
We talk a lot about how many businesses fail in their first years, but the truth is that entrepreneurs are still keeping at it. According to the Small Business Administration, approximately 25% more new businesses opened than closed from March 2020 to March 2021.
While this is exciting news, it means that there are even more competitors out in the world trying to scoop up market share, which means that doing a competitive analysis is only the first step. Getting the right information and putting it to work in your business strategy is essential.
Here are the four things you need to learn from your competitive analysis and why:
1. What are the actual products and services being offered by my competitors?
One of the common mistakes that a founder will make is simply identifying their competitors by which businesses out in the world are serving the same target customer as they are.
Why is this a problem?
Not every business that serves your customer in the same niche is a competitor. In fact, they might actually be a great strategic partner.
Start by taking a hard look at what your competitor is doing. Does their product or service have the same features? Does it have the same benefits as yours? Ask yourself if a customer can use both products or if using one cancels out the need for the other.
If you're unclear about whether or not a company is a competitor to yours, dig deeper. Sign up for a demo, purchase a sample, or reach out and talk to their customers.
This is how you determine if a company is actually a competitor; if your customer can reasonably shop with both brands, you may not be in direct competition like you previously thought.
Related: The Ultimate Guide to Competitive Research for Small Businesses
2. How are your competitors positioning themselves, and who are the customers they appeal to most?
Years ago, I worked with a client in the activewear space. It's easy to see that the space was very saturated with competition. Some initial customer research got us responses from people saying, "That's so expensive; why would I pay that much for a pair of running pants when I can get them for $20 at X?"
And every time, the founder would say, "Well, that's not our customer." She knew that her ideal customer wasn't just any woman who liked to workout. Her niche was the customer who was a serious athlete and cared more about the quality of the running pants than their price.
And she was right.
According to a study conducted by HubSpot, companies that prioritize their niche marketing strategies experience a 75% higher conversion rate than those that do not. The study also found that businesses focusing on their niche are more likely to generate qualified leads and achieve higher ROI.
Once you determine your true competitors, it's time to learn more about their position in the market — and yours. Every brand has a niche where they are the perfect solution for the pain points of a particular type of customer — the key is figuring out who that customer is by taking a deeper look at what language your competition is using and who exactly they are trying to speak to.
3. What is the competition doing for marketing?
Marketing is an essential part of building a business today. There is so much competition out in the world; it would be folly to expect our customers to be able to find us on their own.
According to a report by Marketo, companies that prioritize marketing efforts are 13 times more likely to see positive ROI than those that don't. The report also found that businesses that prioritize marketing can achieve higher brand recognition and increase customer loyalty, ultimately leading to increased revenue and brand growth.
By analyzing what your competitors are doing on the marketing front, you can gain valuable insights into what works and what doesn't in your market. You'll gain critical insight into where you should be spending your energy and budget for maximum returns.
Keeping an eye on your competitors also allows you to stay ahead of industry trends and respond quickly to changes in the market.
Have they stopped doing Facebook messenger and started engaging customers via SMS?
Are they moving their social efforts from Instagram to Tik Tok?
Are they spending more time engaging influencers to create video content instead of posting blogs?
By learning from your competitors, you can continually improve your marketing strategy and maintain a competitive edge, improve your marketing efforts and avoid costly mistakes when it comes to how you spend your time and budget.
Related: You Need to Spy On Your Competition to Succeed: Business Spying 101
4. Discover areas of opportunity
As businesses, we can always do better, and that's very true of your competition. Competitive analysis can help you not only identify where your competitors are crushing it but it will also allow you to discover any gaps in the market that you may be able to fill.
Once you've analyzed your true competition, you may find that they are ignoring a specific customer segment, lack in customer service or experience, or are failing to innovate.
These are all opportunities of untapped potential that will allow you to differentiate yourself from your competitors and create a blue ocean for your brand.
According to a study by McKinsey & Company, companies that create blue oceans outperform their competitors by an average of 14 times over ten years, allowing them to escape the fierce competition in existing market spaces (red oceans) and develop new pathways to profitability.
I agree with Simon Sinek's perspective that our biggest competition is within ourselves
, but we start separating our brand from the pack through competitive analysis. Despite the challenges in gaining a competitive edge, it is a worthy pursuit that can be achieved by selecting the right questions and using the insights gained to guide strategic decisions. Through this process, brand leaders can successfully differentiate their companies and achieve serious growth.
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