Analyze the competition and get ahead
Author and futurist Charles M. Perrottet identified two types of businesses – eagles and ostriches. The eagles analyze their competitors and assume their competitors do the same to them. The ostriches don’t look around them and remain focused on their own activities without regard for anyone else.
Most businesses don’t know enough about their rivals to anticipate the moves their competitors are going to make. In short, most of them are ostriches. Very few businesses will optimize their profitability without a basic awareness of their competitors’ activities and operations but far too many try.
Competitor Analysis (or ‘CA’) is an in-depth analysis of one or more rivals. This involves gathering information on how they’re structured, how they operate, who their people are, their strengths and weaknesses, and what they’re likely to do in the future.
It’s this kind of information that can be used to make decisions about your own business – emulate the best aspects, avoid duplicating the mistakes of others, and plan your own future so that you’ll come out on top.
To be really good at CA means that you’ll know almost as much about your competitors as you do about your own business. This is expensive and time-consuming as you’d expect so most businesses compromise and do a job that’s less than perfect but hopefully is still adequate.
How far you go towards full CA will be determined by many factors. You might do just the minimum and collect your rivals’ literature, visit their websites, sample their products, monitor news articles about them, and possibly talk with some of their customers and staff. This will at least give you an idea of what they’re up to.
The four basic steps of CA essentially involve identifying rivals, performing a SWOT analysis on them, then feeding this knowledge back into your own business:
1. Identify and learn about your competitors
2. Analyze their strengths and weaknesses
3. Identify their opportunities and threats
4. Relate this knowledge to your business
Identify and learn about your competitors
If you think you don’t have any competitors you have good reason to worry. If nobody else thinks your line of business is a good idea you might not be in it for long. Chances are that you do have competitors and you need to know what they’re doing.
Think outside the square. For example, a professional services firm offering immigration advice has lots of direct rivals. Some are up the street, some are on the internet, some work for government bodies (your competitors don’t always charge for their services), and some are in other countries.
Look first at those who dominate your market – the big brands, the big names. Then go down the chain to the others supplying your market. Always ask: “Who else can give my customers what I sell to them?” and then you’ll start identifying all your competitors.
Be aware too of those who are potential competitors. Growing market segments are an invitation for established firms to expand into them and it’s unwise to assume you’ll have anything to yourself for long. Who has the ability to become a competitor? Add them to your list of rivals.
Analyze their strengths and weaknesses
Here’s where it starts getting hard. Each of those rivals or potential rivals has strengths you need to analyze to see if they can be developed in your business. Why do their customers buy from them? What makes them successful? It could be their products or it could be their marketing. What is it?
Then it comes down to finding out what their weaknesses are. Are their prices too high? Are their locations poor? Perhaps their products are inferior to others in your market. If you know their weaknesses the chances are they do too, which can be a guide to their future actions.
Identify their opportunities and threats
These are outside factors and will mostly be your own opportunities and threats as well. An example is the advent of the internet on traditional retailers. For some it was a threat but for most it became an opportunity.
For a while the hype screamed that ‘bricks and mortar’ stores were going to be superseded by a new breed of web-based retailers but as we now know it didn’t turn out that way. Using CA the traditional retailers quickly expanded into having their own websites and online catalogues, effectively shutting out most of the newcomers and riding out the storm until it blew over.
Look for any outside factors that could affect your business. These factors could be driven by technology, the result of new legislation or even the development of a new product.
Some will be opportunities for you to grow your business and others will be threats that could mean you have to adapt or lose some of your market. As long as you’ve identified them you possess the knowledge you need to make decisions about your future.
Relate this knowledge to your business
You’ve identified your competitors and know their strengths and weaknesses. You’ve also determined the opportunities and threats out there in the marketplace. Now it’s time to work out what you need to do to drive your business where you want it to go.
Start by doing a SWOT analysis on your own business. Look at such elements as your pricing, your operating costs, your marketing and your ability to change to meet the competition. How do you stack up?
What your competitors are doing right you can do as well. If you’re also doing what they’re doing that’s wrong, stop doing it. Fine-tune your business so that you can take advantage of the opportunities out there and not be injured by outside factors that threaten your success.
Be an eagle and you’ll never have to worry about the ostriches!
Article courtesy of RAN ONE: http://www.ranone.com/features/news.asp?ID=3930