Competitive analysis for small business

“The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.” – Henry Ford, Founder of Ford Motor Company

Identifying competition – both current and potential – is important. It’ll help you understand the potential of your business idea, and what proportion of the market you might expect to capture.

What makes a business a competitor?

There are a couple of ways a business can be a competitor:

  • Market commonality (number of markets in which the business competes with your company)
  • Similarity in resources used to your company

To identify who your competition really is, look from the customer’s viewpoint. What existing companies offer the kinds of things they would look for with you? Include both direct competition (offering a product or service very similar to your business) and indirect competition (offering a substitute or a variation of the product or service delivered by your business).

For example, Pizza Hut and Pizza 73 are direct competitors, both offering pizza to consumers, while Pizza Hut and Kentucky Fried Chicken are indirect competitors because they both offer fast food to consumers.

Where to find the competition

Ideas for finding your competition include conducting surveys (asking people where they currently go for this type of service or product), and reviewing social media, business listings, magazine ads, and online searches.

How to analyze your business’ competition

Look at your competition from various angles to figure out the strengths and weaknesses within different components of the business. Gather this information for each of your top competitors:

  • Capabilities — Their strengths and weaknesses — are their products or services innovative or outdated? Is there any intellectual property protection like a patent?
  • Future Plans — How do they plan to grow? What new products or services will they offer?
  • Current Strategies — What are they doing right now when it comes to selling their product or service? Marketing? Advertising?
  • Comparison of Products and Services to Your Own — How are they similar? How do they differ?
  • Similarity of Markets — In how many different markets do your two companies compete?
  • Similarity of Resources — What resources, such as equipment, staff size, and brands, do they have that might be similar to yours?
  • Reputation and Customer Reviews — What are their customers saying about them?
  • Estimated Sales — How well do they expect to do in the future? How does it compare to your estimated sales in the market, i.e. low price, high quality?
  • Marketing and Advertising Methods — How is the product or service positioned? Where is it advertised? Where is it sold? What is the price, and how does it compare to your pricing?

This information will help you determine where you fit in the food chain. In other words — your potential sales and share of the market. This may help you find the most effective strategy to gain a competitive advantage.

You can also use this information to help you come up with an effective marketing strategy — how to position your product or service differently from competition, as well as how to price, promote and distribute your product or service. Be careful, though — smear campaigns rarely win the hearts of customers.

Where can you find this information? Look for trade associations and publications; annual reports; websites; court records; companies’ help wanted ads; patent and trademark filings; financial reports; and blogs. Talk to potential customers, attend trade shows, and test out the competition’s product or service firsthand to make your own judgements.

Use our How Do I Measure Up? Competitive Matrix Worksheet to understand how your strengths and weaknesses compare to those of your competition. Then, get familiar with the competitive advantages – and which one will be best for you!

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