After giving the reader a good idea of the important trends and paradigm shifts in the industry, you will need to specifically point out your major competitors This means factoring in on not just your direct competition, but the indirect competition as well.
One very important aspect of business that every business owner must deal with is competition. It is a fact every business has competition regardless of how small or large it is. The way you decide to handle competition in your business can make the difference between profit and loss; and between you staying in the race or you getting kicked out.
This is why it is very necessary for every entrepreneur to have plans on how to deal with competition and competitors when starting a business.
It is for this reason that business plans have sections for competitor and competitive analysis. This section of your business plan is devoted to analyzing your competition, and not just your current competition, but also potential competitors who would enter your market at one point or the other.
What is Competitor Analysis?
A competitor analysis is an assessment of the strengths and weaknesses of your businesses’ competitors. Carrying out competitor and competitive analysis would help you identify your competitors and see how they would influence your revenue.
A comprehensive analysis of your competitors will also allow you to track how your business compares with that of your competitors in terms of financial resources, staff, products or services, market share, pricing, customers, financial data, brand recognition, location, marketing tactics, logistics etc.
Including a competitor analysis in your business plan tells investors that you know what you are getting into, that you understand your marketplace and that you have plans in place to compete at the same level as established competitors. This can actually up your chances of getting startup capital.
Why Should You Include a Competitive and Competitor Analysis in your Business Plan?
- It can help you understand the competitive advantages and disadvantages in your industry
- It would help you gain insight into your competitors’ business strategies
- It would help you develop strategies to achieve in the future
- It can assist your management with developing well-tailored
- It can help you identify opportunities in the market that are under-served
- It can help you take advantage of competitors’ weaknesses to grow your market share
- It can help you in forecasting future investments
4 Types of Competitors your Business Would Be Up Against
Every business has different types of competitors that it should be wary of and they typically include;
a. Direct Competitors: These are competitors that provide exactly the same products or service that you are providing. No matter what business line you are into, direct competitors are usually your main competitors. For instance, if you want to establish a business that retails cosmetics, other cosmetic shops around your vicinity are your direct competitors.
b. Indirect competitors: these are businesses that offer products and services that are close substitutes, and as well target the same group of customers with the goal of satisfying the same need. For instance, a cosmetic shop competes indirectly with a hair salon or spa.
c. Occasional Competitors: these are competitors that provide services or products which differ slightly to yours or they are situated in a different location.
d. Future competitors: these are existing companies that are not yet in the market-space that you intend to occupy but could move there at any time. For instance, a spa is not in direct competition with a cosmetic shop, but it has every tendency of offering its clients cosmetics in the near future.
9 Steps to Conducting Competitive and Competitor Analysis
Conducting an effective and efficient competitor analysis takes procedures that may include;
Identify your Competitors
The first step in conducting a competitor analysis is to identify your competitors. You can start this by considering the range of competition in your market-space because not all competition are the same, and there are different types of competitors your business will face. Your main competitors are companies that customers can easily buy from instead of from you and they represent your most intense competition.
When conducting a competitor or competitive analysis, your first port of call is to identify each of your competitors; in fact, you need to profile them. If you plan on opening an antique store, your competitors would be any store that sells antiques, crafts, jewelry etc within your location.
Online stores should also be included if you plan to take your wares online. You may also want to include information on companies that may be entering your market in the coming year or subsequently. You equally have to look at their aims and objectives, the market share they occupy and what they aim to achieve in the now and the near future.
Identify their strengths and weaknesses
Once you have identified your competitors, you then have to find out that makes them tick. This can be identified as their strengths. For a business, their strengths can be their price range, service or product, convenience, extensive inventory etc.
These areas are what can help them to edge you out of the market, so you really have to take note of them when writing your competitor analysis. Another thing of importance to note here is their weaknesses; what makes them not to sell as much as they should.
These are areas you should aim to capitalize on to grow your business and gain market share. This maybe their poor publicity strategies, limited products range, etc. To obtain most of this information, you can go through their websites and marketing materials.
Most of the information you need about products, services, prices, and company objectives should be readily available there. If that information is not available, then you may have identified a weakness. In addition to visiting their website, you have to as well visit their offline locations to see things for yourself.
This is a section where you zero in on your competitors target market. First of all, a businesses’ primary target market is the group of customers that they service the most. Identify who your target market is and then do some research on your competitors to see who their target market is. A good place to start would be their website and marketing communications.
Market share can be defined as the percentage of the market you account for. You have already identified your target market, now it is time to calculate your market share based on your competitors. You have to make a complete analysis of your market share to know which sections you have to devote most of your time, energy and finances to.
In this section of the template, you have to fill in your marketing strategies and predict those of your competitors. If you are not familiar with what they are doing, do some research and observe what strategies they are using. A good place to start looking is their advertising campaigns and promotional materials. The goal here is to try and predict what they might have planned for the future and how that will affect you.
How a company advertises creates a great opportunity to uncover the objectives and strategies of that business. Advertising should help you quickly determine how a company positions itself, who it markets to, and what strategies it employs to reach potential customers.
Carry out Product/Service Profiling
Your product and/or service offering include your range of products and services. This section of the competitor analysis template involves comparing your offerings to those of your competitor. It is important here to take a look at your product range, product quality and brand credibility.
Here, you need to evaluate your products and services for strengths and weaknesses; in fact you can conduct a full SWOT analysis on your products or services, and if you like, put them in a scale from 1 to 10.
It is much easier to find information on public companies than private companies, but it’s always a good idea to do as much background research as possible. When discussing each of your competitors, you will want to use the SWOT Analysis. Here’s what it stands for:
- S – Strengths: What do they have going for them? Is it their technology, brand, people, or lean value chain?
- W – Weakness: What are they missing out on? Do they lack experienced management, reliable customer service, or customer retention tactics?
- O – Opportunities: What are they positioned to take advantage of? Are their environmental, technological, or other trends or changes they are likely to benefit from?
- T – Threat: What gives them sleepless nights? What are they always worried about?
Do the same for your competitors’ products or services and you would get to see the difference. This would help you know which product or service is likely to get more market share and why. This section gives you the opportunity to identify new viable markets that can be exploited with a new product, or make product or service variations to fill a gap in an existing market.
Pricing and Costs
Pricing can tell a lot about your competitors. Here you want to be looking at what pricing strategies you and your competitors are implementing. You have to find out if they are low-cost or high-cost providers, what are their mark-ups, does their business require volume sales or once off purchases?
These and other questions would help you determine the price range of your competitors and use it to compare your own. Again, pricing is an observable source so you should be able to get most of the answers by looking at your competitors offerings.
Here, you need to ask yourself a few questions. What is the market for your company’s product like? Is it growing? If so, then you may not have issues with your competitors as regards customers. If on the other hand the market is flat, then the competition for customers is likely going to be fierce.
Your company may find itself scrambling to win market share. By the time you have done most of your research, you will have enough information to determine what the outlook really is.
Next, find out what makes each of your outlined competitors unique. Their competitive advantage is what would help them outperform you and other businesses offering the same kind of product or service. You need to determine what they offer that the other businesses on the list don’t, and why some customers pick them over you or your other competitors. This is a very important aspect of your competitor analysis so you have to take your time on it.
Next, you will discuss what makes your offer distinct from others in the marketplace. These variables are your “unique selling points,” “value propositions,” or “competitive strategy.” The following questions will help you craft this part perfectly:
- Can you scale your operations in order to offer lower prices than majority of the players in an effort to maximize profits?
- Does your business offer something distinct from those of the current cost leaders in your industry?
- What is your niche or specific target market?
Finally, it is important you bear in mind that your product or service will have a competitive advantage if it meets the following conditions:
- Satisfies a previously undiscovered need, or comes as a first-of-its-kind solution to an existing need
- Solves problems faster than other offers available
- Spots a better design that stands out from others
- Comes at a lower price than other offers
- Helps customers save money
- Helps customers reduce risk
- Taps into a previously under served or never served market
- Offers greater ease of use than other offers
As an entrepreneur, your competitor should not be seen as a threat but as a source of inspiration and a reference point that will enable you establish a stronger product or service base. Analyzing of your competitors can help you keep your finger on the pulse of what is happening in the industry, thus preventing you from taking any unnecessary risks.
A quick and easy way to compare your product or service with similar ones on the market is to make a competition grid. Get a piece of paper and write out the names of four or five products or services that compete with yours. To help you generate this list, think of what your customers would buy if they didn’t buy your product or utilize your service.
Across the top of the paper, list the main features and characteristics of each product or service. Include such things as target market, price, size, method of distribution, and extent of customer service. For a service, list prospective buyers, where the service is available, price, website, toll-free phone number, and other features that are relevant.
A glance at the competition grid will help you see where your product fits in the overall market. Bear in mind that you don’t need to be perfect, offer the lowest prices or provide an extremely efficient service. The most important thing is just to be slightly better than your competitors.