A com­pet­i­tion analysis helps companies to get an overview of which com­pet­it­ors are pursuing which strategies. The analysis also makes it easier to suc­cess­fully position one’s own company within the market.

What is a com­pet­i­tion analysis?

A com­pet­i­tion analysis examines the methods, products and strategic po­s­i­tion­ing of other companies within a market segment. The behaviour of direct com­pet­it­ors is evaluated with the help of various ana­lyt­ic­al methods. From this analysis, companies can gain insights about the market and develop re­com­mend­a­tions for their own strategic decision making.

The analysis of the com­pet­i­tion helps to uncover a company’s own strengths and weak­nesses as well as any unused potential. Important market de­vel­op­ments, such as possible new market players, can also be iden­ti­fied at an early stage.

A com­pet­i­tion analysis is not a one-off endeavour. It should be carried out regularly to determine or, if necessary, change one’s position in the market.

How to create a com­pet­i­tion analysis

Different methods can be used to conduct an analysis of the com­pet­i­tion. Such methods help to better define the company’s position, un­der­stand how it dif­fer­en­ti­ates itself from com­pet­it­ors and formulate re­com­mend­a­tion for action to be taken.

A com­pet­i­tion analysis is comprised of the following steps:

Identify your direct com­pet­it­ors

First, you need to make a list of your direct com­pet­it­ors. This is usually the easy part, as most companies can clearly identify other companies that are in the same market. Whether it’s the second plumber business in town, the barber shop in the city centre or a medium-sized company leading the market, you are mostly like aware of them.

Direct com­pet­it­ors are companies or en­tre­pren­eurs who offer a similar product or service for a similar target group. If your business operates offline, you can use a radius to narrow down your selection. For example, you could use a radius of 5 miles, 15 miles or 40 miles to determine each relevant com­pet­it­or in the area.

If your products or services can be ordered or used online, search for your com­pet­it­ors via Google or social media searches.

Identify your indirect com­pet­it­ors

Indirect com­pet­it­ors can be more difficult to identify. They don’t offer similar products or services and might not even operate in the same industry. In order to identify them, it’s important to know exactly why your target audience uses your products or services.

Often indirect com­pet­it­ors are competing for the resources of a company’s target group, spe­cific­ally their time or money. For example, video games are a relevant indirect com­pet­it­or for a streaming provider, since they are also competing for a consumer’s free time.

Pri­or­it­ise your com­pet­it­ors

Once you’ve iden­ti­fied your direct and indirect com­pet­it­ors, the next step is to pri­or­it­ise them. You can use different variables to do this. Some examples include product prices, geo­graph­ic­al proximity to the target audience or the market position of the com­pet­it­or in question. Product in­nov­a­tions and possible mergers within a market should also be con­sidered when ranking com­pet­it­ors.

Analyse strengths and weak­nesses

An analysis of the com­pet­it­ors’ strengths and weak­nesses gives you a better picture of the com­pet­it­ive situation in your market. The focus should be on how well a service or product is accepted and used by a specific customer segment.

You can use the following questions to assess your com­pet­it­ors’ strengths and weak­nesses:

  • What kind of supplier part­ner­ships do they have?
  • What are the barriers to market entry for potential indirect com­pet­it­ors? Do they already offer sub­sti­tute products?
  • How do com­pet­it­ors price their products? Do they tend to focus on product quality or offering the cheapest price possible?
  • Does the com­pet­i­tion have a unique selling pro­pos­i­tion (USP) due to key tech­no­lo­gic­al com­pet­en­cies or other factors?
  • How strongly are the com­pet­it­ors affected by external factors, such as national laws or in­ter­na­tion­al reg­u­la­tions?
  • Which sales channels do com­pet­it­ors use? Can any con­clu­sions about the size of marketing budgets be drawn from them?
  • Can any recent negative reports be found about the com­pet­it­ors? Have they ex­per­i­enced any waves of resig­na­tions lately?
  • Do com­pet­it­ors already serve the needs of customers? What kind of ratings do they get on review websites?

Pri­or­it­ise strengths

Lastly, you need to highlight the strengths of your com­pet­it­ors and those of your own company. You can emphasise different factors to do this. For example, if your company is going to launch a marketing campaign soon, you should consider the marketing activ­it­ies of your com­pet­it­ors as well.

By pri­or­it­ising strengths, you’ll be able to create concrete, ac­tion­able steps for your business to take. For instance, if you notice that com­pet­it­ors have a better standing with suppliers, your business can actively work on es­tab­lish­ing new supplier re­la­tion­ships.

How to proceed with a com­pet­it­or analysis

Although the terms com­pet­it­or analysis and com­pet­i­tion analysis are sometimes used in­ter­change­ably, com­pet­it­or analysis is actually a part of a com­pet­i­tion analysis. A com­pet­it­or analysis is carried out in a similar way and focuses on eval­u­at­ing a potential com­pet­it­ors’ strengths and weak­nesses.

By analysing com­pet­it­ors, you can better plan in­vest­ments, identify op­por­tun­it­ies for col­lab­or­a­tion and make short-term changes. It also gives you a timeframe for the strategic and op­er­a­tion­al steps that your company should take.

What kind of in­form­a­tion should be used for analysing the com­pet­i­tion?

Although by no means an ex­haust­ive list, the following in­form­a­tion can be used as the basis for con­duct­ing analysis:

  • Economic situation of other suppliers on the market
  • How the sales, marketing or re­cruit­ing de­part­ments are struc­tured
  • Po­s­i­tion­ing in the market: price oriented, quality oriented, or spe­cial­ised in niche products
  • Offer structure
  • Supplier re­la­tion­ships

What is the goal of a com­pet­i­tion analysis?

The goal of a com­pet­i­tion or market analysis is to determine one’s own position in the market and to make short-term and long-term re­com­mend­a­tions for action. These could include in­vest­ments in areas such as sales and tech­no­lo­gies or in­tro­du­cing new products to expand your business to new customer segments.

What tools can be used for an analysis of the com­pet­i­tion?

Many tools and methods from stra­tegic­al man­age­ment are also suitable for analysing the com­pet­i­tion. These include:

SWOT analysis

A SWOT analysis examines the strengths, weak­nesses, op­por­tun­it­ies and threats of a company as well as the com­pet­i­tion in the market. The current market position can be precisely de­term­ined and op­por­tun­it­ies for dif­fer­en­ti­ation or expansion can also be iden­ti­fied. SWOT analysis is one of the most fre­quently used methods for com­pet­i­tion analysis.

PESTEL analysis

A PESTEL analysis focuses on six different aspects that directly impact companies, namely political, economic, social, tech­no­lo­gic­al, en­vir­on­ment­al and legal factors.

Porter’s Five Forces

According to Porter, a market analysis should examine five com­pet­it­ive forces within an industry:

  • Com­pet­it­ive rivalries
  • Market entry of potential com­pet­it­ors
  • Ne­go­ti­at­ing power of suppliers
  • Ne­go­ti­at­ing power of customers
  • Potential threat from sub­sti­tute products

Which factors should be con­sidered in a com­pet­i­tion analysis?

A com­pet­i­tion analysis can be broken down into internal and external factors. It’s important to pay attention to internal de­vel­op­ments. At the same time, it’s also necessary to consider the complex situation of the market in its entirety. This way companies can obtain a better picture of all the forces that can impact their market position and create re­com­mend­a­tions for action ac­cord­ingly.

External factors: the situation around the company

External factors include:

  • Gov­ern­ment-related factors: reg­u­la­tions or legal re­quire­ments usually affect entire market segments. Examples include pricing guidelines and licensing re­stric­tions.
  • Customer: companies should always keep their customers in mind when con­duct­ing a com­pet­i­tion analysis. How do product price, quality and avail­ab­il­ity affect them? Which dis­tri­bu­tion channels are being used?
  • Al­tern­at­ive offerings: do your customers use products or services in the market that are in­dir­ectly competing with yours?
  • Suppliers: what is the nature of supply and value chains in the market? Are certain in­di­vidu­al suppliers in areas such as pro­duc­tion so critical that supply bot­tle­necks can cause problems?
  • Market entry pos­sib­il­ity: are barriers such as required know-how making it hard for new companies to enter the market? Or is entry into the market re­l­at­ively easy?

Internal factors: location, company culture etc.

A good corporate culture is the corner­stone of long-term business success. However, other factors influence a company’s direction and op­por­tun­it­ies for further de­vel­op­ment as well. Changing internal factors often requires extensive change man­age­ment projects.

  • Location: where are pro­duc­tion fa­cil­it­ies, logistics centres and headquar­ters located? How well are they connected to the overall city or area in­fra­struc­ture? This is not only an important factor regarding the trans­port­a­tion of products but also for the at­tract­ive­ness of the company as a potential workplace.
  • Number of employees: how large is the workforce? To what extent are marketing and sales able to operate?
  • Spe­cial­isa­tion of skilled workers: do the employees have the necessary skills or is it necessary to integrate new talent into the company, for example, in the areas of pro­gram­ming and software?
  • Company culture as well as diversity and inclusion: how long do employees stay with the company? Are there enough op­por­tun­it­ies for career ad­vance­ment? Does the company have people with diverse back­grounds, iden­tit­ies and ex­per­i­ences? Are they rep­res­en­ted in lead­er­ship positions?

When and how often should a com­pet­i­tion analysis be done?

A com­pet­i­tion analysis is the backbone of starting a business or re­ori­ent­ing an existing one. It should serve as a guide for all sub­sequent business activ­it­ies.

Basic in­form­a­tion about existing market con­di­tions is even needed to launch new products or redesign a website. For this purpose, companies should always prepare an analysis of the com­pet­i­tion.

A com­pet­i­tion analysis should be carried out in regular intervals even if there are no plans for new product launches. It’s important to con­tinu­ously evaluate the ori­ent­a­tion of your company and, if necessary, adjust it based on the findings from the analysis.

It ensures that es­tab­lished companies stay up to date about changes in the market and are equipped to react and adapt ac­cord­ingly. Regular com­pet­it­or mon­it­or­ing also helps companies to gain important updates on com­pet­it­ors’ activ­it­ies. This can be done with the help of press releases or social media, for example.

What are the benefits of a com­pet­i­tion analysis?

A com­pre­hens­ive analysis of the com­pet­it­ors provides companies a clear picture of the internal and external factors impacting their business as well as giving them a better un­der­stand­ing of the re­quire­ments of the market. It can be seen as an early warning system that enables companies to react more ef­fect­ively to changes within and outside the market.

A com­pet­i­tion analysis helps companies with strategic planning by en­cour­aging con­tinu­ous eval­u­ation of different de­pend­en­cies, ranging from supplier re­la­tion­ships and raw material avail­ab­il­ity to the company’s repu­ta­tion as an employer. It helps to determine market potential, identify potential new com­pet­it­ors in advance and even establish market lead­er­ship.

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