Unlocking Business Growth with Competitive Analysis
In today's business environment, it's more important than ever to have a deep understanding of the competitive landscape. Competitive analysis is a powerful tool that can help businesses gain insights into their competitors, market position, and emerging trends and opportunities. In this blog, we'll explore the key benefits of competitive analysis, provide practical tips for conducting an effective analysis, highlight some common pitfalls to avoid, and show you real examples of how companies use competitive analysis to drive business outcomes.
If you want to understand your target market and drive business growth, read my guide on How to do Market Research for your Business after this post.
What is competitive analysis?
Competitive analysis, commonly referred to as competitor analysis, is the process of evaluating and assessing the strengths and weaknesses of competitors in a particular market. Companies use competitive analysis to understand the landscape and identify opportunities and threats they may face from their competitors, which can inform pricing strategies, marketing channels, technology development, and more.
What are the advantages of competitive analysis?
Here are some of the advantages of using competitive analysis over other research methods:
- Provides real-world data: One advantage of competitive analysis is that it relies on how your competitors are actually performing in the market. Unlike other research methods like focus groups, where you have to extrapolate your findings to a larger population, competitive analysis lets you see real-time strategies playing out to their total audience.
- Cost-effective: Competitive analysis is generally less expensive than other market research methods, such as surveys or focus groups.
- Focused research: Competitive analysis allows you to focus your research efforts on a specific set of competitors rather than trying to gather information from a broad range of sources or research an entire market. This can help you be more efficient in your research efforts and gain more targeted insights.
What are the drawbacks of competitive analysis?
While competitive analysis can be a powerful market research method, it also has some limitations compared to other research methods like focus groups. Here are some of the potential drawbacks of competitive analysis:
- Limited scope: Competitive analysis focuses solely on your competitors, which means you may miss out on valuable insights from other sources, such as potential customers or industry experts.
- Limited data: Competitive analysis relies on publicly available data, which may not provide a complete picture of your competitors' strategies, performance, or internal processes. This can limit the effectiveness of your analysis and lead to incomplete or inaccurate conclusions.
- Lack of nuance: Competitive analysis focuses on high-level trends and strategies, which can lack the nuance and detail necessary to make truly informed decisions. Research methods like customer interviews or focus groups may provide more detailed insights.
Common use cases for competitive analysis
Here are some common ways businesses use competitive analysis:
- Pricing strategies: Companies can get data on how competitors are pricing their products or services, which they can use as benchmarks to determine the best pricing strategy to remain competitive.
- Product development: Companies can find new opportunities to build products or features based on competitors' offerings.
- Sales channels: Companies can identify which sales channels to pursue and the relationships and tactics necessary to close deals based on competitors' sales activity.
- Search engine optimization (SEO): Companies can identify keywords, backlinks, and content strategies to strengthen their overall SEO strategy based on competitors' SEO traffic.
- Marketing strategies: Companies can develop their marketing strategy by understanding competitors' messaging, tactics, and channels.
- Talent acquisition: Companies can learn what skills and roles competitors are hiring for and where they hire from, which can help them develop their recruitment strategy to attract top talent.
- Partnership opportunities: Companies can find potential partners to expand market reach and drive growth based on partners that competitors work with.
- Risk mitigation: Companies can use competitive analysis to plan for potential threats from new competitors, emerging technologies, or changing customer behaviors.
Types of competitors
There are several types of competitors that a business may face, including:
- Direct competitors are businesses that offer the same products or services and target the same customer base. For example, In-N-Out Burger is a direct competitor with Five Guys.
- Indirect competitors are businesses offering products or services that may not be the same as yours but can still fulfill customer needs or wants. For example, an indirect competitor to a gym could be a meal delivery service that offers healthy, pre-made meals to customers who want to lose weight.
- Replacement competitors are businesses offering products or services that could replace your offerings. For example, ride-sharing apps like Uber and Lyft are replacement competitors for traditional taxi services.
How to conduct competitive analysis
Step 1: Pick 5 competitors
To identify your competitors, start with searches on Google, Yelp, and Amazon around your business idea (i.e., thrift shop) or product (i.e., used clothes). The list you create should feature competitors that:
- Have the same business idea (i.e., John's Thrift Shop, another thrift shop in the area)
- Sells the same product (i.e., Depop, a way to buy used clothes online)
- Has the same or similar customer base that you want (i.e., Goodwill, a nonprofit with a customer base of bargain hunters)
If you're in a competitive industry and need to narrow down your list, prioritize competitors based on the following:
- Who do your target customers love?
- Proximity to your location
- Companies or a similar (or your desired) size
Step 2: Create a spreadsheet
To keep the data you collect organized neatly, create a simple spreadsheet that can be shared with team members and updated over time. We'll gather the following data on your competitors to input into the spreadsheet:
- Products or Services
- Price
- Sales
- Marketing
- Advertising
- Brand Positioning
- Customer Service
- Partnerships
- Team
- Funding
- Other categories that you want to compare
Important Note: While this will give you a complete competitive analysis, you can change, add, or subtract categories based on your business and your goals for the research.
Step 3: Collect information on your competitors
Products or Services
How to find products or services information:
- If it's a brick-and-mortar business, visit their store and see what products or services they offer.
- If it's an online business, visit their website's product or service pages and check relevant marketplaces (i.e., a sporting goods company might sell products on Amazon)
Ask yourself the following questions:
- What are their products or services?
- Which products are they prioritizing?
- What are the customer ratings for the products or services?
How this information may inform your business strategy:
- What products or services a competitor sells becomes more valuable over the long run because you can see which products or services have staying power versus those that get dropped.
- Which products a competitor prioritizes can show you which drives the most revenue and customers or has the best margins. Sometimes competitors will make this easy to see. For example, an online apparel company might have a tag for "favorites" on its website, or a restaurant might have a "diner's favorites" section on the menu.
- What customer ratings are for a competitor's products can foreshadow how they will adjust what they sell over time. For example, you can expect a company will adapt a product or remove it entirely from their store if it has poor customer ratings.
Price
How to find pricing information:
- If it's a brick-and-mortar business, visit their store and see what prices they charge for specific products or services.
- If it's an online business, visit their website's product or service pages and check relevant marketplaces (i.e., a sporting goods company might sell products on Amazon) to see what prices they charge.
Ask yourself the following questions:
- What prices do they charge?
- Do they price products as budget-friendly or upscale?
- Do they have distinct pricing strategies for online sales compared to in-store sales?
- Are they offering any discounts to customers?
How this information may inform your business strategy:
- What prices they charge can be valuable data you can use as a benchmark to set or adjust your prices. This information becomes even more valuable over the long run because you can see which products or services are more price sensitive than others.
- Whether they price products as budget-friendly or upscale can give you more information about their product and customers' preferences. For example, a business pricing its products as upscale may target customers willing to pay more for superior quality (i.e., a jacket made from full-grain leather), features (i.e., a camera with long-range zoom), or services (i.e., 24/7 phone support).
- Using distinct pricing strategies could indicate that the competitor considers the differences between the two channels, such as the overhead costs of running a physical store versus an online storefront.
- Offering discounts can reveal that the competitor is prioritizing increasing sales and attracting new customers over profit margins and the risk of potentially eroding the perception of the value of its products and services.
Sales
How to find sales information:
Sales channels:
- Examine your competitor's website to see if they have an online store or a list of retail locations.
- Check if they have a "Where to Buy" or "Store Locator" page to see if they list specific wholesale retailers or distributors.
- Read their FAQs or ask customer support where you can buy their product.
- Check their social media pages to see if they have attended any trade shows, conferences, or in-person events to sell products in the past.
Sales tactics:
- Visit a retail location as a potential customer and interact with a store representative.
- Abandon a product in an online shopping cart.
- Call their support number and ask questions about their products.
- Actually, purchase a product.
Ask yourself the following questions:
- What is their sales process?
- What sales channels are they using?
- What sales tactics are they using?
- How big is their sales team?
- How do they qualify their customers?
- How do they communicate with you during the sales process?
- What communication do they send if you drop out of the sales process?
- How long is their sales cycle?
How this information may inform your business strategy:
- Their sales process can serve as a blueprint to create or adapt your company's sales process.
- What sales channels a competitor uses could indicate how your target customer prefers to buy the product. For example, a sunglasses company may sell in retail locations instead of online because customers want to try them on their faces to see how they look before purchasing.
- A competitor's sales tactics could help you find ways to generate more revenue. For example, maybe you pick up on how in-store customer representatives upsell customers based on specific product selections that add value to your purchase.
- The size of their sales team may indicate how efficient your competitors are and how much they value a human touch in their sales process.
- How a competitor qualifies their customer can help you adjust the data you collect or criteria you set to identify high-value prospects who are most likely to convert into customers. For example, a competitor may collect LinkedIn profiles to see a prospect's job title to understand if they are talking to a decision-maker within the company before qualifying them as a buyer.
- How they communicate with you during the sale process can key you in on important language that resonates with your target customer. For example, a company may use "scholarship" instead of "discount" during its sales process since the word discount could potentially erode the customer's perception of the value of its products and services.
- What communication they send you if you drop out of the sale process could show you how they handle objections. For example, they might use price (20% discount) or additions (free shipping) as levers to convert you.
- The length of their sales cycle can show you the depth required to close a deal. For example, a longer sales cycle could indicate they need buy-in from multiple stakeholders within the company before they can close a deal. Long sales cycles are common for businesses that sell to the government or education providers like schools.
Marketing
How to find marketing information:
- Similarweb - Find out a business's marketing channel distribution, social media distribution, and more.
- Ahrefs - Look at any competitor's organic search traffic and backlink profile.
- Sprout Social - Benchmark your social performance against competitors.
- Phlanx - Find out competitors' social media performance with their engagement calculator.
- MozBar - Assess competitors' page and domain authority.
- Sign up for their newsletter.
- Read their blog.
- Follow them on social media.
Ask yourself the following questions:
- What are their top marketing channels?
- What are their top social media channels?
- What messages are they trying to get across in their marketing collateral?
- How does their marketing make you feel?
- Where are their customers located?
- What is the age and gender of their customers?
- What are their customer's audience interests?
- Do they have a blog?
- What content do they feature on the blog?
- How much monthly traffic do they get?
- What are the top keywords they rank for?
How this information may inform your business strategy:
- Your competitors' top marketing channels, especially for established companies, could tell you where they see the best return on investment to drive brand awareness or generate leads.
- Similarly, your competitors' top social media channels may tell you where their audience hangs out.
- The messages they push in marketing collateral may indicate how they motivate their audience to make purchasing decisions, want to be perceived, and what words or memories they want to be associated with. For example, by using messages like "Just do it," Nike aligns itself with the doers who pursue their goals no matter how difficult or challenging.
- How their marketing makes you feel may give you ideas about creating emotional connections with your target customers. For example, an apparel company might use body positivity and self-acceptance marketing campaigns to evoke feelings of love and inner beauty in their target audience.
- The location of their customers may indicate an untapped market opportunity you can take advantage of.
- The age and gender of your competitors' customers could help you refine your marketing efforts and ensure that you're targeting the right audience.
- Their customers' audience interests could clue you in on particular products or services you could provide that your competitor does not yet offer.
- A company with a blog could imply that they prioritize content marketing and are willing to invest time and resources into creating valuable content for its audience.
- The blog content could give you an idea of their level of industry expertise.
- Knowing a competitor's monthly website traffic could be used to assess how long it might take for a new business to compete with them.
- A competitor's top keywords may show you your competitor's SEO strategies and how customers find them.
Advertising
How to find advertising information:
- SE Ranking - Analyze competitors' paid campaigns and see the dynamics.
- LinkedIn - Find the company's LinkedIn page, click on Posts, then click on Ads.
- Facebook Ad Library
- TikTok Ad Library
Ask yourself the following questions:
- What headlines are they using?
- What is the call to action?
- What language tactics are they using?
- What value does the ad provide to the customer?
- How does the ad make you feel?
- What parts of the ad capture your eye?
- What is the engagement on the ad?
How this information may inform your business strategy:
- The headline could help you gain insights into the company's unique value proposition and how they communicate to its target audience.
- The call to action may tell you the goal of the ad, whether they are trying to drive sales or increase brand awareness.
- The language tactics in an ad may indicate how they incentivize action from their target customer. For example, a company might use words like "limited time only" to create scarcity or FOMO.
- How their ad makes you feel could indicate how to create emotional connections with your target audience.
- Analyzing the elements that catch your eye could give you insight into how they connect with their target audience.
- The engagement on the ad could show you if it resonates with their target customer.
Brand Positioning
How to find brand positioning information:
- Read their website copy and look for the "About us" page or mission statement.
- Watch or listen to interviews with the CEO or owners of the company.
- Scan a press release to see how they talk about themselves.
- Scroll through their social media copy.
Ask yourself the following questions:
- What story do they tell customers?
- What are the notable differences between them and their competitors?
- How does the brand position its products or services in the market?
- What is the brand personality?
- What is the tone of voice?
How this information may inform your business strategy:
- The story they tell customers could indicate how they want to be perceived. For example, when Levi's tells their origin story, they focus on the durability of the jeans and how they served customers ranging from miners to Presidents. They want their audience to see them as a pioneer in jeans and a company that appeals to everyday people regardless of their occupation due to the practicality of the jeans' style and durability.
- The notable differences between them and their competitors could reveal their unique value proposition. For example, the delivery time might be a noteworthy difference between two grocery delivery services in your area. A commitment to 10 minutes or fewer deliveries could be a company's unique value proposition.
- How the brand positions its products or services relative to the market may tell you how they view itself in the market. For example, Kanye West sells plain white t-shirts for 100x the price other companies sell them for, indicating that he believes consumers value his brand more than other brands selling the same piece of clothing.
- A brand's personality could reflect its values and beliefs.
- A brand's tone of voice could differentiate it from competitors and help it to stand out in the market. For example, a brand that uses humor and wit in its messaging may be more memorable and engaging than a competitor with a more straightforward tone.
Customer Service
How to find customer service information:
- Find the customer support section on their website.
- Search "[company name] customer service" on Google.
- Many large brands will have specific social media accounts dedicated to customer support. For example, Xfinity uses this secondary account for customer support on Twitter.
Ask yourself the following questions:
- What customer support do they offer?
- Which visitors do they offer customer support to?
- What's their average response time?
- Who is doing the customer support?
How this information may inform your business strategy:
- What customer support they offer could tell you how much a company is willing to invest in ensuring their customers have a positive experience.
- Which visitors they offer customer support to may tell you who the company actually sees as a customer. For example, Facebook offers customer support to businesses that buy ads on the platform but does not offer any customer support to a regular user with a profile.
- Their average response time may indicate how much of a priority customer support is for the business and the efficiency of the customer support team.
- Who is doing the customer support may tell you how developed the company is from an internal operation and resources standpoint. For example, suppose a CEO is doing customer support. In that case, the business may still be developing its operations and need more resources to staff a customer support team.
Partnerships
How to find partnerships information:
- Find the partners section (i.e., here's Apple's partners) on their website.
- Many companies will post on social media to announce a partnership (i.e., Slack's Chief Product Officer announcing their new partnership with Open AI on LinkedIn).
- See who the partnerships team is connected with on LinkedIn by looking at their recent activity.
Ask yourself the following questions:
- Who are they partnered with?
- How do they structure their partnerships?
- Who are the key stakeholders in the partnership?
How this information may inform your business strategy:
- Who they have partnered with may show you the types of partnerships they believe will drive value to their customers.
- How they structure their partnerships could tell you what is important to them. For example, a startup accelerator may partner with software companies under the premise that they offer discounts to companies coming out of the accelerator for their services.
- The key stakeholders in the partnership may help you figure out who to contact when creating similar partnerships within the industry.
Team
How to find team information:
- Look at their website and find the "Team" or "About us" page.
- Look at the company's LinkedIn page and see who works there.
Ask yourself the following questions:
- How big is their team?
- How do they allocate headcount resources between departments?
- What are the skillsets of the executive team?
- What are the backgrounds of the executive team?
How this information may inform your business strategy:
- The size of their team may give you an idea about how efficiently the company operates. Revenue per employee is an excellent benchmark for efficiency.
- Headcount resources may tell you how the company thinks it will win. For example, a team of ten engineers to one sales representative may indicate a belief in a strong product to drive growth.
- The skill sets of the executive team could tell you the company's priorities since most small businesses often can only hire part of an executive team. For example, the executive team might consist of a CEO and a COO. This may indicate the business prioritizes its internal operations before being ready to bring on a CMO or a different skill set.
- The backgrounds of the executive team could show you where the company recruits from. For example, the executive team may have worked together at specific companies or attended the same school.
Funding
How to find funding information:
- Crunchbase
- Pitchbook
- Companies may announce funding rounds on their website or social media pages (i.e., Hex announced their funding round from Sequoia Capital on socials and their blog).
- Search "[company name] funding" on Google.
Ask yourself the following questions:
- How much capital have they raised?
- When was their last financing round?
- Who has invested in the company?
- Who led their round?
How this information may inform your business strategy:
- How much capital they raised could indicate investors' level of external belief in the company's long-term financial success. It's important to note that significant outside capital is not always a good signal. It may mean that the business still needs to figure out its business model or the unit economics to make the company profitable and needs capital to extend its runway to survive.
- When they last raised money may tell you the company's runway or whether they have recently hit key milestones. For example, most companies fundraise to have 18+ months of runway. If it's been two years since they last fundraised, the company may have achieved profitability or could be close to running out of money.
- Who invested in the company could tell just how strong their future outlook is. The best venture capital firms don't miss often. The top 10 firms own 38% of the world's unicorns.
- The investor that led their round may be the one with the most conviction in the company.
Step 4: Organize your information in a SWOT Analysis
SWOT analysis is a framework used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of a business. After you collect information on your five competitors, categorize the information using the framework.
This will make it easier to see how you can differentiate your company from its competitors and achieve long-term success. As a best practice, aim to update your SWOT analysis annually or before year-long planning sessions with your team.
Other less-popular frameworks that you could consider using for competitive analysis:
- Porter's 5 Forces
- Competitive Profile Matrix
- SOAR Analysis
Tips with competitive analysis
- Fear the right things: Most competitors won't kill you. Most companies die from self-inflected wounds, such as mismanaging their runway, internal disputes, or failing to build a product or service that people actually want.
- Don't let the fear of hypothetical competitors influence your decisions: Many companies shy away from building products or services because they think an established company like Google may try to compete with them. However, Google has a limited amount of skin in the game regarding new products since they have a monopoly on search and ads. They also have a lot of bureaucracy which slows them down. You can win, even if a big company competes with you.
- Stay true to your brand identity: Your brand identity should guide your business decisions. So while being aware of your competitor's strategies is essential, don't compromise your business by copying them.
Common mistakes with competitive analysis
- Not considering external factors: Market conditions, regulatory changes, and other external factors can significantly impact the competitive landscape. Failing to take these factors into account could result in incorrect analysis.
- Assuming there is no room in the market: Some businesses do competitive analysis and think there is no room for them because there are existing solutions that customers love. Think about Blockbuster vs. Netflix or Blackberry vs. Apple. Things can change quickly.
- Confirmation bias: With competitive analysis, confirmation bias can lead to a narrow and incorrect analysis. If business owners only focus on information that confirms their assumptions about competitors, they may miss important insights that could challenge their assumptions or reveal new opportunities.
How companies use competitive analysis today to drive business outcomes
1. Uber - Pricing
Uber, the ride-sharing company, uses competitive analysis to keep tabs on the pricing strategies of competitors like Lyft. When Uber filed to go public, the influence of competitors' pricing strategies on their pricing decisions became clear. In its S1 filling, the registration form a company files to IPO, they disclosed that revenues had diminished due to "heavy subsidies and discounts by our competitors," which the company felt compelled to match or exceed "to stay competitive." Uber's use of competitive analysis is one key factor in the company's ability to finally turn a profit, which it did for the first time in Q3 2021.
2. Pinterest - SEO
Search is Pinterest's second most significant source of website visitor traffic, accounting for over 20% of the company's overall traffic. It gets over 200,000 monthly visitors from search traffic. Because SEO is a crucial part of its business, they use competitive analysis to maintain its top ranking. In Pinterest's S1, they acknowledge this by stating, "competitors' SEO strategies may be more successful than ours" as a critical risk to the company's long-term health.
3. Facebook - Government Regulations
The ability to operate in international markets is one of Facebook's key growth drivers. However, Facebook's relationship with governments has been complex and often contentious. The social media giant has been the subject of numerous government investigations and inquiries, particularly data privacy, content moderation, and antitrust concerns. Based on Facebook's S1, the company regularly conducts a competitive analysis of competitors and their relationships with regulators in international markets to determine the best ways to mitigate and get ahead of any regulatory problems they may encounter with international parties.
4. Netflix - Content
Netflix is always coming up with exciting new shows, including many popular dating shows like Love is Blind and Perfect Match. But they don't just pull these ideas out of thin air - they do competitive analysis to determine what people like and what works best. By examining audience demographics, ratings, and social media buzz, Netflix can decide which elements of a successful dating show to incorporate into its versions.
5. Pandora - Business Model
Pandora, the popular music streaming service, has evolved its business model to keep up with the changing streaming music landscape based on competitive analysis. One inflection point was the move to a subscription-based service in 2017. Pandora recognized that Spotify's subscription-based model was gaining popularity and attracting a large user base. As a result, Pandora decided to layer a premium subscription service, Pandora Premium, on top of their people-and-data-powered playlist engine to remain competitive.
Unlock business growth with competitive analysis today
In conclusion, competitive analysis is critical for unlocking business growth in today's competitive market. By understanding the strengths and weaknesses of competitors, businesses can identify new opportunities, optimize their strategies, and differentiate themselves in the market.
