Competitive Analysis

Sections of this topic

    Since every business has competitors, every business plan needs competitive analysis — also known as competitive intelligence.

    Direct competitors provide more or less similar products or services, such as coffee shops. Indirect or generic competitors provide different things, but customers will often choose between them. For example, nearby restaurants may offer different eating options, but compete for customers. Shall we do Chinese or Mexican tonight? Incidentally, another form of competition is for customers to opt out entirely. Shall we eat pizza at home tonight?

    Here’s how to do competitive analysis:

    Identify Major Competitors

    Find out from potential customers how they currently get their needs met. What products or services do they already consume that your offerings might be better, cheaper, more convenient? Figure out the 3-5 “best” competitive choices for your target customers, and study them intensively.

    Visit in person or online, shop anonymously, read up about them in the trade and popular press, talk to industry experts. Try to get a solid but objective handle on each firm’s strengths and weaknesses, particularly relative to your customers’ preferences. Determine the key success factors for this industry.

    Prepare Competitive Profiles

    Next, write a brief profile of each major competitor, summarizing information such as products, markets, facilities, pricing, marketing strategies, and finances. Carefully assess how each competitor might or might not pose a competitive challenge to your firm, and what you would do to overcome that threat.

    Create Competitive Matrix

    Finally, prepare a table or spreadsheet to summarize your findings. On the left side of the table, list the most important success factors — such as product reliability, customer service, capital investment, distribution channels, pricing, and so on. In the next column, weight each success factor so that the total adds up to 1.0. Then, in the remaining columns, list each of the major competitors. Working across the table, rank from one to five each competitor on each of the success factors, then insert a column to weight your rankings, which is obtained by multiplying the ranking by the weighting. At the bottom, add up the weighted values to create an overall assessment of which competitors represent the most serious challenges to your company.

    Use this competitive analysis to help you decide how to position your business to compete (or cooperate) most effectively with your primary competitors. It’s not that hard if you follow these steps, or you can bring in a consultant to do this as part of your business planning process. More information at:

    Good luck!

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    For more resources, see our Library topic Business Planning.