Competitive Analysis – A Guide for Your Small Business

The competitive analysis is a very valuable component of the marketing strategy for any small business. The major barrier to market penetration for a small business is their respective competition. The competitive analysis accomplishes that very simple function: to analyze your competition in your marketplace.

 

This article will draw upon my previous experience in marketing and business development across a range of industries. In a couple of different stops in the course of my marketing career I was called upon to develop a competitive analysis. I have also crafted the competitive analysis as part of a larger business plan.

 

Furthermore, my experience also includes identifying the competitive advantage for a few different companies and crafting that advantage into a marketing strategy to develop new business.

 

Studying your competitors – gathering key data

 

The first step in the compilation of the competitive analysis is to identify and study your competition. That process can include studying their respective web site, researching the background of the company and the key executives, and searching the web for any recent news about each competitor.

 

Some other companies I have worked with look into the financial information available for a given competitor, but in a small business setting this information is very often not disclosed to the public, so I do not think it would apply in many situations.

 

Then, identify the strengths and weakness of your competitors, one by one, and enter that information into a chart or an Excel spreadsheet. This way you can review the information and determine whether the competitor has a distinct advantage over your small business.

 

Conversely, you can also identify through your research, the advantage that you have over your competitors in the marketplace. Once you have identified that advantage, you can proceed with developing the strategy that will provide the best opportunity for capturing potential new business.

 

Barriers to prevent competition and common weaknesses

 

In my experience, I have worked with companies and designed documents that in the planning stages they would all mention the barriers to preventing competition in your market. However, in today’s rapidly changing world, I am not sure how many barriers really could block a competitor from entering a particular business market.

 

Some of those potential barriers could be if it is a niche market and the level of specialization is too intricate for a potential start up business to enter the space. They would have a lack of qualified personnel to attract and hire with knowledge of the market. I have experience working in a niche market, where I observed that situation with new smaller companies trying to break into the market.

 

If the product you are producing in the market has particular methods or processes which your company has obtained patents for, then that could be a potential barrier to a new player in the market. In the same way, we have seen products improved from the original patented version, so I am not sure how prohibitive that barrier potentially can be to a competitor.

 

I could see, depending on the business and the industry it operates within, that the startup costs could be a potential barrier to the formation of another competitor, or could affect the potency of that competitor to have an impact on the market.

 

The opposite is also true, if the market is too crowded with competition that could be a barrier for a new company weighing whether to enter the mix, with a high amount of competition it may not make sense for a new company to pursue market entry.

 

Some of the common weaknesses of companies are: their reputation, their customer service performance, their marketing program, the quality of their product, the quality control of their product, and the management of their company.

 

What are you competing for?

Some companies compete for dollars, others compete for market share, but in small business you are competing for your own survival.

 

 

Your small business is competing everyday for the same projects or business opportunities as your respective competitors for the ability to grow the business and gain another precious commodity: a stellar reputation.

 

 

In order to fully analyze your business versus your competitors business, you have to have a very strong knowledge of your competitor’s strategy for business development. In my experience, in each role I have had in my career, I have studied the way the competition does business in the marketplace.

 

 

Some companies focus on competing on price and will do anything, including diminishing the quality of their product or service to try and grow business through price slashing methods. This is a critical factor for your business to understand and also compose a strategy to deal with this type of competitor. This is especially true if you are not willing to diminish your product’s quality to solely compete on price.

 

Other competitors will focus on a different growth strategy such as having great technical staff which can “custom build” a product or service to suit the needs of the customers in your marketplace. In short, you have to know each competitors particular competitive advantage and come up with a strategy to offset it.

 

 

Identify the Key Weakness of your Competitor

 

The knowledge of your competition also must include knowing their respective key weakness. Each company has a particular weakness that you must be aware of as you market your product or service in a competitive business environment. I worked for a company in the medical field where we knew that our product had a better formulary status than their product. Therefore, our product was available to the patient at a better price.

 

It is incumbent upon your small business to learn the key weakness of the companies in your market and to determine ways to interject that into the competitive business environment. However, I caution you that in my experience, I never liked “bashing the competition” I do not think it works and I also do not think the customers like bashing the competition. So it has to be used subtly and in a rather diplomatic manner to be utilized correctly.

 

Key Customer Motivation Point

 

It is also very important to know your customers and their key motivation point. If your company does not understand the motivation for your customers, it can lose a significant amount of potential business.

 

I worked for a company where we knew that the key customer motivation point was price. We tried to compete in some product lines, and in other product lines we made the decision that we would not diminish the quality of our product to compete in certain segments of the marketplace. Your company would have to weigh the costs of developing an alternative product line from scratch versus how much business you could bring in from that particular market segment. You will find sometimes it does not make sense to “be all things to all people”.

 

Your company must have an identified Competitive Advantage for each product line or market where you have a position within. It must be very concise and succinct and it can be incorporated into your business plan, your marketing plan, and also be featured in sales presentations to potential customers.

 

In order to completely understand your Competitive Advantage, it will take a long look internally into your business. It needs to be an honest assessment in order to be an effective tool to implement within your marketing operation. This can be difficult for some companies to do, so you may need to consider hiring an outside consultant on a per diem basis to come in and review your operation to complete the Competitive Advantage process.

 

 

Key Costs of the product or service in your markets

 

Another part of the competitive analysis is to understand the key costs of the product or service in your markets.   You must know the entire picture surrounding any outside factors which may affect the costs of your product or service. This may include commodity products that may be affected by ingredients that may come in from other countries. The currency exchange rates could affect the key costs of the ingredients in your product.

 

Your company must be able to adapt to these changing conditions in order to keep the costs of your product or service within reasonable boundaries.

 

 

Summing It All Up

 

The marketing strategy for competitive advantage should be a comprehensive look into your business and that of the competition in your market. It should take into account the areas in which I mentioned earlier in this article. Your company needs to understand how your competition works relative to their pricing, distribution, and how they promote their business or products.

 

The competitive analysis for your company can be done well if it is a concerted effort to put together a complete review of the competitors in your marketplace. I hope that this article will help you in this endeavor.

 

 

 

 

 

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