Competitive analysis is the process of evaluating competitors to gain insight into their strengths and weaknesses relative to your own business. It can help you identify opportunities for your own business and to make informed decisions.
Competitive analysis can be used to understand:
- Market share
- Strengths and weaknesses
- Growth strategy – how your competitors are planning to grow
- Barriers to entry – what might prevent you from entering a market
- Opportunities – what segment are competitors missing
- Unique advantages – what separates you from your competitors
To start competitive analysis, you need to identify your competitors.
- Direct competitors market to the same audience as you
- Indirect competitors market to a different audience
- Substitutes and alternatives – some competitors may be selling a completely different product or service that satisfies the same need, thus competing for the same money
Research your competitors to understand what products and services they offer, how much they are selling, to who they are selling, what their finances are like (do they raise a lot of venture capital and are ready to invest, or is their investing constrained by their cash flows? and are they profitable or are they losing money each year?)
Think about the competitors using Porter’s five forces:
- Potential for new entrants (that could be you when entering a new market, or someone else entering after you)
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of new substitutes (the ability of customers to find substitutes)
- Internal competition (level of rivalry among established competitors)
Then think about your own business and determine your:
- Strengths
- Weaknesses
- Opportunities
- Threats
Compass
After you have a basic understanding of your competitors, you can level up with advanced competitive analysis.
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