Marketing is generally all about staying up-to-date with the latest trends. However, Sun Tzu – the author of “The Art of War” said something that every business needs to remember:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
While he may not be talking about the marketplace of 2022, knowing is the enemy or your competitor is the key to success. Whatever business you conduct, there is always another company offering something similar. The marketplace is always evolving. To stay on top and outperform your competition, you need to conduct competitive analysis from time to time.
In this article, we will discuss competitive analysis, its importance, the steps to conduct a competitive analysis, and the five most popular competitive analysis frameworks.
What is Competitive Market Analysis?
A competitive analysis is a process of identifying your competitors and evaluating them based on predetermined criteria. It helps you see your business in comparison to your competitors, identify gaps, and potential growth opportunities in the market. Good competitor analysis helps you see your own and your competition’s business from a customer’s perspective to pinpoint areas of improvement.
Why is it Important to Conduct Competitive Analysis?
A competitive analysis is an excellent way for businesses to acquire both qualitative and quantitative data to make business decisions. The goal is to find out who your competitors are and what kind of threats they may be presenting to your business.
According to a survey report by Crayon, about 90% of the businesses report that over the last three years, their industry has become more competitive. (1) Let’s dive into how competitive analysis can benefit your company:
- Identify (or validate) the unique value proposition (UVP) of your product and what makes it unique, which can help you navigate your marketing effort.
- Identify what your competitor is doing right to ensure that your business is staying relevant and your product and marketing are outperforming industry standards.
- Pinpoint your competitor’s weaknesses, which can help you find areas of opportunities in the marketplace, and test new marketing strategies.
- Gather information on what products or services are currently available to your target customers and which segments are being neglected.
- Establish a benchmark against which you can measure your company’s growth.
How to Conduct a Competitive Analysis: Step-by-Step
Step 1: Identify Your Competitors
Have you heard the saying “keep your friends close and your enemies closer”? When it comes to the business world, you always need to keep an eye out for your competitors. However, in this fast-paced world of technology, you may not even know who your “enemy” is. To identify your competitors, we start by dividing them into two categories:
- Direct competitors are businesses that offer the same solutions, target the same customers, and generally operate in the same region.
- Indirect competitors are businesses that do not offer the same product but have the potential to satisfy the same customer needs and solve the same problem.
For example, StitchFix and Fabletics are two companies that sell clothes and cater to the same customer base. If two brands are selling the same product i.e. clothes, then they may seem like competitors, but that’s where things get interesting. The two brands sell two different types of clothing and small variations are enough to make a big difference. One sells stylish everyday wear while the other sells work attire only making them indirect competitors.
Indirect competition is not where you should focus your attention, but you cannot disregard them entirely. They can shift positions anytime and become your direct competitor and that is one of the reasons why you should routinely run a competitive analysis.
What you need to do is to pay close attention to the direct competition, and keep the indirect competition under your radar.
Step 2: Determine Your Competition’s Products or Services
Any business is known for the product or service that they offer, which is a good place to start your competitor analysis. That involves taking note of their product quality, pricing, shipping, and any discounts that they’re offering.
For any business, pricing their products or services correctly is integral and can be quite a challenge. Many factors go into correctly pricing your products and analyzing your competitor’s pricing is critical in staying on top of industry pricing. If your competitor is charging more for a similar product, then you can consider raising your prices. Alternatively, there may be a gap in the market for affordable products or services that you can fulfill.
Shipping is another important factor and the number one reason for cart abandonment. (2) Free shipping is a major perk that compels consumers to choose one brand over another. How many times have you tossed simple products into an Amazon cart to qualify for free shipping? So, start by offering the same shipping costs and if your competition offers free shipping, then look into how you can offer the same.
Step 3: Research Your Competition’s Sales Tactics
Researching and analyzing your competitor’s sales tactics can be quite a challenge. Businesses are not likely to give up the trade secrets or sales tactics that they are using. To start, you can check the following elements of your competition’s sales strategy:
- Sales process
- Sales channel
- Why customers are buying their product
- Sales location and whether they are expanding
- Partner reseller programs
- Discounts or promotions
Gathering data about the elements above can help you get an idea of the competitiveness of their sales process. You can find the annual reports for publicly-held companies online, but for a private company, you will need to dig deeper.
A good place to start is by conducting a survey, either in the form of an online questionnaire or focus group. Reach out to your current customers and potential customers to identify why they prefer one brand over another. Alongside gathering information, you can also ask open-ended questions to gather valuable feedback and ideas.
Step 4: Determine the Market Positioning of your Competitor
According to David D’Aveni an American Academic and business consultant:
“Whenever I’ve asked senior executives to map the positions of their company’s brands and those of key rivals, we end up confused and dismayed.”
For any business, competitive positioning is an integral differentiator from the others. What makes a brand unique is the UVP (unique value proportion) – a factor that attracts new customers. To have a strong market position, every brand should offer primary benefits and be able to justify their prices for it.
Here’s how you can map your competitive position according to Richard D’Aveni (3).
- Define the market and its boundaries.
- Choose the price and determine a primary benefit.
- Plot positions and draw an expected-price line.
Step 5: Evaluate Your Competitor’s Website and Customer Experience
On the subject of the internet, Bill Gatessaid that:
“If your business is not on the internet, then your business will be out of business”
In the post-COVID world, having an online presence is no longer a choice for a business. What’s even more important is the customer experience online.
Statistics show that even if people love a company, 59% of consumers will turn away after repeated bad experiences and 17% will abandon after just one bad experience. (4)
To check what kind of customer experience your competitor is providing, open their website and check how simple it is to shop and checkout. The user experience includes website navigation, loading time, user interaction with forms, etc.
Step 6: Analyze and Compare the Content Strategy of Your Competition
Content is the backbone of any business, especially if they’re operating online. In one of his articles – Content is King published in 1996, Bill Gates said:
“Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting.” – Bill Gates
Analyzing your competitor’s content can help you find gaps and opportunities to outperform them. Here are a few things that you should consider:
- What type of content your competitor is publishing. For example, blogs, case studies, whitepapers, newsletters, or ebooks.
- Check if they are posting gated content (content that visitors can access only after providing certain information).
- Next, check how frequently your competitor publishes new content and the main topics they focus on. If your competitor covers more topics and publishes more frequently, then your company should also start generating more traffic.
- After analyzing frequency, you also need to pay close attention to the quality of the content. Publishing more frequently won’t help if you don’t post content that adds value to the reader.
- We all know that a picture is worth a thousand words, and you can never underestimate the importance of the images in your content pieces. While scanning their content, see if your competitor is using stock images, or custom images, and how the pictures are being sourced.
Once you have gained a solid understanding of your competitor’s content strategy, the next step is to find out what works for them. Make sure that you’re doing right by your content and make sure to always put quality over quantity.
Step 7: Learn What Technology Your Competitor is Using
In marketing, technology may seem like something any brand could acquire easily. However, remember that technology is nothing more than an enabler. At the end of the day, what matters most is how the technology is being used and not what kind of technology you are using.
Here are a few things that you should look out for while conducting research about your competitor’s technology:
- eCommerce platforms or technology stack
- Customer service software
- Supporting systems such as email marketing service providers, payment processors, etc.
- Advanced technology such as chatbots, AI, AR, or VR.
To check out what kind of technology your competitor is using, you can type their website URL into Built With– an online tool that can help you find out which technology the website is built with along with any third-party plugins.
Another way to do so is by looking at your competitor’s job listings, particularly for web developers and software engineers. The listing will likely include what kind of skills and tools the candidates should be familiar with. For example, if they’re looking for a MERN stack developer, then they’re probably using the MERN stack.
Step 8: Analyze the Social Media Strategy of Your Competition
In the age of selfies and hashtags, you cannot expect to run a successful business without a powerful social media presence. About 55% of consumers learn about new brands on social media. (5) Even before making an offline purchase, most of us check the product or brand reviews online.
An important step in any competitive analysis is to determine how your competitor is leveraging social media in marketing. Starting from whether or not they have accounts on social media platforms such as Twitter, Instagram, Facebook, Snapchat, and the often-forgotten Pinterest. Next, checking their engagement, followers, retweets, etc. analyzing their social media strategy can greatly help you enhance yours.
On the flip side, social media platforms are a goldmine for the Voice of Customer (VoC) data. The first place that any customer will reach after a bad experience is a social media platform or a community discussion platform such as Reddit. You can leverage that data for product development and brand positioning. If you have the budget, then social listening and sentiment analysis tools can be an excellent investment.
Competitor Analysis Frameworks
A competitor analysis framework is a tool that is used by marketers and business professionals to research and evaluate their competitors. They’re used to collect information about a competitor’s business such as their products, marketing efforts, sales, and more into a visual model that is easy to analyze. We will discuss the five most important competitor analysis frameworks in this article.
The SWOT (strength weakness opportunities threats) analysis is one of the oldest and most popular competitor analysis frameworks. In a SWOT analysis, you evaluate various internal (strengths and weaknesses) and external (opportunities and threats) factors that impact a business.
SWOT analysis is generally conducted as part of much larger competitor analysis. Marketing agencies or teams conduct SWOT analysis across numerous channels including website, blog, digital ads, social media, and organic search. The goal is to find an advantage over the competitors, areas of improvement, and make recommendations.
Porter’s Five Forces
While conducting a competitor analysis, you will discover that various industries are competing to serve the same market segment (one that you are targeting). Developed by Micheal Porter – an academic and professor at Harvard Business School, Porter’s five forces is an excellent framework to analyze competitors.
The framework helps companies evaluate a market or industry according to five elements:
- The threat of fresh entrants
- The bargaining power of buyers
- The bargaining power of suppliers
- The threat of substitutes
- The intensity of competitive rivalry
The best use of Porter’s Five Forces is in analyzing the competitive structure of an entire industry or market. Examining the five forces offers insights into how attractive the new market or industry can be and shape your strategy to fit the competitive landscape of a market or industry.
Strategic Group Analysis
As the name suggests, strategic group analysis analyzes competitors in a group or cluster based on the similarity of their strategy. The important thing is to categorize your own company as well. You can group organizations according to their pricing strategies, marketing tactics, products, and more. Strategic group analysis allows you to see which cluster your organization falls into, and how a different strategic approach can create an impact.
The growth-share matrix was developed by the founder of Boston Consulting Group (BCG) – Bruce Handerson in 1970. The matrix classifies your company’s products against your industry’s competitive landscape. It gained popularity for helping companies decide on new products and investments based on the market competitiveness.
A growth-share matrix classifies your company's products or business units into four quadrants:
- Stars are products that have a high growth rate and market share. These are products where you should invest more.
- Question marks are products (generally new products) that have a high growth rate but a low market share. You need to decide whether you want to invest more (in which case they become stars) or give up on them.
- Cash cows are products with a low market share and high growth rates. The purpose of having cash cows is to fund the stars.
- Pets are products with a low market share and growth rate. You must decide whether to reposition or give up on these products.
Perceptual mapping, also known as position mapping, is a visual representation of the perception of your company and its competitors on a plot graph. To get started with this framework, you need to select two factors to use as a basis for comparison. The next step is to map your company and your competitor’s position on the map with respect to the two factors.
The main use of perceptual mapping is in analyzing how your customers view your company and its products against your competitors. This can help you identify gaps, and market trends to make improvements.
How to Take the First Step in Competitive Analysis with Starlight Analytics
Competitive analysis is a long and tedious process, but with the right tools, you can make the process seamless. Starlight Analytics offers three main products to help you with market research, product concept testing, product price testing, and social listening.
Product concept testing helps you measure the market demand for a particular product along with its features and benefits. The next step is to find the optimal price point and range, which you can do with product price testing. Lastly, a social listening service can help you listen to the voice of customers by picking chatter from blogs, social media, and forums.