Knowing your competitors is central to developing a useful business plan. Without knowing them you cannot sensibly target a specific section of the market, decide on a pricing policy or work out how you will be different and have advantage. Yet when challenged, many entrepreneurs will only have a superficial or partial knowledge of their key competitors. Indeed, some will even argue that they have no competitors. If this really is the case, then congratulations to them, they have a monopoly and will make massive profit. Unfortunately, under scrutiny this is rarely, perhaps never, the situation.
Really knowing your competitors does not come without effort and systematic analysis. It is not difficult, but it is time consuming and to be candid, can be boring. Nevertheless, it will increase your chance of success. It is important to identify your key competitors, rather than try to include all potential competitors, this will become too onerous. Narrow down your key competitors by considering things like your geographic offer and your product/ service offer. Be realistic, if you have a local takeaway food outlet, then a similar takeaway twenty miles away is not really a competitor, even with delivery services. A local high end restaurant is also not a competitor. Ideally, you want to narrow down to a core of five or six realistic competitors that your customers would use rather than your business. Five or six is a manageable number of competitors to gather information about and compare .
Before the internet, competitor analysis often required manual directory searches, visiting trade shows, posing as a customer to obtain brochures and even visiting competitors. Today a simple Google search is often enough to reveal a plethora of competitive information. Nevertheless, it is important to be selective and to have a systematic set of information that you want to gather for comparison [1]. Otherwise, you will end up with a hotchpotch of data that you cannot compare. You will need to tailor your information for your particular sector, but the sort of information you need will probably include:
- Competitor name
- Attributes of core product/service
- Price of core product/service
- Target customers
- Geographic coverage
- Strengths
- Weaknesses
- Size of business
- Age of business
- Web address
- Social media channels
This list is not exhaustive [1], but it gives an idea of the sort of information you need on your key competitors. You could perhaps present the information in a tabular form to make comparison easier. Of course, you should include a column for your business to see how you shape up against the competition. You may also want to include a column for your business after you have made changes to counter your competitors’ offer and achieve a competitive position. Competitor weaknesses are particularly important in identifying your competitive position. It is these weaknesses that you would exploit to target your offer to a particular segment of the market.
Be careful not to try to compete on all the criteria separately, you are unlikely to be the cheapest, best quality, have the most attributes and target all segments of the market. Also, you need to consider weaknesses across all your competitors. Ideally you will find a weakness they all share that you can exploit. You need to take a holistic view of the competitors’ offers and in that context decide how you will be different.
Porter (1985) suggests you should compete on price or find some way to make yourself different from the competitors [2]. To compete on price you will need to have a lower cost than your competitors, otherwise they will price you out or you will make low profits or a loss. Competing on price probably means you need very streamlined operations, cheap suppliers or large volumes. There can only be one business with the lowest prices, so be careful in adopting this strategy, else you may cause a price war to the bottom and drive yourself out of business. This is especially the case if you are competing against a well established larger business. You may think they have overheads that you do not need, large premises, staff and such, but they also may have financial reserves to outlast you in a price war, and they may have economies of scale that you cannot achieve. Also, remember, they have a lot to lose, so they will fight hard and long.
For most smaller scale businesses some form of differentiation and targeting a specific customer segment is probably the best approach [3]. There are many forms of differentiation within a market. The key is to identify a group of customers and their needs and then tailor your offer to match their needs better than your competitors. Indeed, if you target and tailor well, then a less focused competitor will find it hard to satisfy your target customers as well as your offer.
Over to you, time to start your competitor analysis. I know you have pressing issues, but do the analysis now, in a few hours you will have new insights into your business and how it can compete.
Developer of Business Plan Quick Builder and BizzLink
[1] There is an exhaustive list of potential information for competitive profiling at https://en.wikipedia.org/wiki/Competitor_analysis. This list is rather onerous and will be too time consuming for most small businesses. There is also a risk of ‘not seeing the wood for the trees’. Therefore, we have suggested a streamlined list of the most salient information.
[2] Porter, M.E. (1985) Competitive Advantage, New York, Free Press
[3] Watkin, D.G. (1986) Towards a Competitive Advantage: A focus of strategy for small retailers, Journal of Small Business Management, 9-15, January.
