“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, Domino’s and Pizza 73 are direct competitors, both offering pizza to consumers, while Domino’s and McDonald’s are indirect competitors because they both offer fast food to consumers.
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:
- Their strengths and weaknesses — are their products or services innovative or outdated? Is there any intellectual property protection like a patent?
- How do they plan to grow? What new products or services will they offer?
- What are they doing right now when it comes to selling their product or service? Marketing? Advertising?
- How are their products or services similar to yours? How do they differ?
- In how many different markets do your two companies compete?
- What resources, such as equipment, staff size, and brands, do they have that might be similar to yours?
- What are their customers saying about them?
- 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?
- How is the product or service marketed? 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, and help you come up with an effective marketing strategy. That is: how to position your product or service differently from competition, and how to price, promote and distribute your product or service.
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!