Competitor analysis
All businesses face competition, and not just from local competitors. With more and more goods and services being sold online, your competitors can be in different countries. However, the more you know about your competitors, the more effectively you can market your business's strengths, and work out how to counteract any advantages competitors might have over you.
On this page:
What do you want to know, and why?
To effectively collect information on your competitors, you need to first determine what it is you want to find out, and why. Here are some ideas.
What am I up against?
If you've yet to start your business and are still wondering whether you should set up a restaurant or a convenience store, for example, the Industry Profiler in Statistics New Zealand's Business Toolbox can give you the 1-5-year survival rates for these types of businesses. If one industry has a much lower five-year survival rate, this could indicate competition will be fierce, and profits correspondingly low.
What and how are my competitors selling?
At first glance, a competitor's products may appear similar to yours, but look closer at their products, website, and advertising and you might find they are selling cheaper, low-quality brands, using outdated technology, or selling something so specialised only a few people will want it.
Also take note of where your competitors advertise - it might be online, in general magazines and newspapers or in specialized magazines, on the radio, through email, or through social media such as Facebook. Does your competitors' advertising:
- Have a broad or narrow geographic focus?
- Change regularly or is it always the same?
- Seek short-term sales growth by offering specials for a limited time?
- Constantly offer unmoving or outdated items on sale?
- Inform or remind their customers?
- Convey a certain image?
By gaining an understanding of your competitors' advertising budget, targeting and strategies, you gain insights into who and where their customers are, how 'big' your competitor is in terms of their volume of sales, changes in their business, and what products and services they are pushing. This will allow you to determine what you can sell with the least amount of competition.
Customer service
Provided you can do so anonymously, you can learn a lot by approaching your competitors as a customer. Go into their businesses and ask some questions. Observe how approachable and friendly their staff are. The owner may be an expert on their products but do staff communicate the same level of knowledge?
Ideally, you should buy something – this is the best way to get a real customer experience. And don't forget to email them with questions and spend some time looking around their website and taking note of how user-friendly it is. By experiencing your competitors' customer service, you'll get good insight into how knowledgeable, prompt, and professional they are - and how easy they are to deal with (or not).
Why do people buy from them?
Ask family and friends if they have dealt with your competitor and what they thought of their products, service, prices, location and website. Then check them out online. A Google search on the business's name might bring up comments (negative or positive) that have been made online, perhaps on special interest forums.
Check if your competitor uses social media such as Facebook, Twitter or a blog to promote their business, and spend some time reading fans and followers' comments. Who are their customers (men, women, younger, older) and what do they seem to like about the business?
Don't forget to check their website for client testimonials. Are there any recurring comments in the testimonials such as "Best value for money" or "Most reliable product I've used"? Finally, note the image your competitor conveys through their social media and how customers respond to it.
What have they revealed about their business?
You can sometimes learn a lot by simply Googling someone's name. An online interview with a competitor can reveal much. What do they say about future plans for their business? If you sell luxury kitchen accessories, for example, and a competitor mentions they plan to start concentrating on selling cheaper goods to reach a broader market, this would be good news for you. You could also look at trade publications, to see if your competitor has been interviewed or written about in the past.
Are they really a competitor?
Sometimes a business that appears to be a direct competitor might not be. A new business owner who was an avid outdoorswoman selling tramping and multisport backpacks was concerned a long-established competitor had already snared the majority of the market. Some online searches revealed the bulk of the competitor’s business actually came from an ongoing contract to supply the Army with custom-made packs, and that the competitor wasn't an outdoorsman himself.
The new business owner then realised not many people were actually buying the competitor's more expensive backpacks and the competitor likely didn't know what type of pack designs outdoor enthusiasts were seeking. Suddenly, the established business didn't seem such a threat after all and the new business owner now understood what strengths she could exploit: better-value, better-designed products sold by an accomplished outdoorswoman who has tested them and loved them.
Analyse your relative strengths and weaknesses
Make a list of what you've learned about your competitors, with a focus on what they do better than you (this shows your weaknesses), and what they're not as good at (this shows your strengths). The purpose of this list is to help you focus on where you need to make changes, and to strategise how you can promote and maintain your strengths.
Changes that address your weaknesses could be anything from making your website easier to navigate, to setting guidelines on the customer service standards you expect from frontline staff. Bigger changes could involve a re-evaluation of your prices or suppliers, or how you target your marketing.
The idea is not to copy your competitors, but to take their best ideas and improve on them. For example, you might have discovered your competition has a 'Buy nine, get the tenth one FREE' customer loyalty scheme. You could adopt a similar loyalty scheme, but expand it by also offering a 'Refer a friend and get a 10% discount on your next purchase/appointment' scheme.
Or, you might have noticed your competition promote themselves as 'The experts in gardening' but their frontline staff are poor at engaging with customers. You could train your staff to start asking each customer how their garden is doing. This would allow your business to show its expertise and leave customers feeling you are genuinely interested in helping them.
It's a good idea to get a better understanding of Intellectual Property to ensure you don't infringe patents. Read what is intellectual property to learn more about the subject.
You should aim to promote your strengths or competitive advantages. It's no good being the best at something if nobody knows about it. If you run a cafe and use only free range eggs, meats, and organic produce, say so on your menus, footpath blackboard, or even on your window signage. If you and your staff are all highly qualified in your industry, promote this in your marketing and display qualifications and accreditations in your store. If you have the best customer parking in town or rigorous quality control processes, make this information prominent on your website and in all your advertising.
Remember, retaining your strengths is just as vital as promoting them. Your competitors could assess you, just as you have assessed them – and they might try to duplicate or improve upon your strengths.
Some of your strengths will be easier to protect than others. If, for example, the location of your business gives you a strong advantage, you might want to negotiate a long-term lease with your landlord or even consider buying the premises.
Competitors might steal your marketing ideas, start stocking the same products as you, or undercut your prices. Instead of investing energy in trying to come up with new ideas or lowering your prices, position yourself as a trendsetter - the business that came up with the idea first. You can market yourself as the business with the most experience and knowledge, and focus on giving consistent, excellent service. And remember, badmouthing the competition can make you look bad, even if your complaint is justified.
