How many other businesses are going after your target customers? What are they offering and how are they delivering it? Answering these questions will help you build a competitive strategy and make your business stronger. Here’s how to do it.
The benefits of a competitive strategy
Your competitors – the ones you worry about, anyway – have successful businesses. They have customers who like what they do, other businesses respect them, and they’re probably making money.
They’ve achieved all the things you want, while serving a similar market to yours. If you think of it that way, they’d make the perfect mentor. And while they probably won’t take you under their wing, you can make them your virtual mentor through competitor analysis. This kind of research can help you see:
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what they’re doing better than you (so you can make improvements)
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what marketing strategies and tactics are working for them
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what mistakes they’ve made, so you can avoid them
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what you’re doing better than them (so you can promote those things)
Taken together, all of these insights can feed into a competitive strategy. This doesn’t have to be a formal document. Your competitive strategy might simply exist within your overall business plan. But you should have one.
Who are your competitors?
There are two kinds of competitors to consider – those who have similar products or services as you, and those who have different products or services but which compete for the same dollar.
Consider the example of Netflix. They don’t just compete with other streaming services, they compete with cinemas, cable TV, YouTube, and other forms of on-screen entertainment like social media and gaming. Think broadly when you’re listing competitors.
What to ask when doing competitor analysis?
Start with the big questions like:
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Who are the major players serving this market?
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Roughly how is the market split up between them?
Then dig a little deeper, with more specific questions like:
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How does the market think about these competitors?
Is someone the young person’s brand? Is someone else the cheap brand? -
What sort of experience are they offering?
How does their product or service look and feel? How does it work?
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How are they delivering?
What do they charge? How do customers order? What reviews do they get?
And for all of these questions, keep asking if your business could differentiate itself in some way.
Identify competitor strengths and weaknesses
As you learn more about your competitors, you’ll begin to see which ones will challenge you most. They might be in your region, or they might target the exact same market segment as you. List the strengths and weaknesses of these competitors.
Strengths might include things like:
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great distribution – they’re in all kinds of shops, all over the place
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huge brand awareness – they’ve been around forever and people trust them
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really good networks – they’ve built lots of great relationships with buyers
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low price point – it’s impossible for you to compete on price
Weaknesses might include things like:
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a dull reputation – consumers don’t get a thrill buying from them
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cheap packaging – their offering lacks polish
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bad reviews – customers aren’t impressed with product quality
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poor customer service – consumers don’t feel valued
By understanding your competitors’ strengths and weaknesses, you can figure out what differentiates you – and where you fit in the market.
What are your advantages?
When doing a competitor analysis, it’s important to consider your advantages. There may be things about your business that others can’t replicate, like:
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Patents or licenses: Are you the only business that can produce a certain product?
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Exclusive supply arrangements: You might be the only business in your area that can sell certain products.
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Special processes: You might have a way of working that others don’t know about.
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Lower costs: Maybe you can deliver products or services for less money.
It’s important to know where you have advantages like these. For example, you can play to these strengths in your marketing.
Will more competitors emerge?
Keep an eye on the future when doing your competitor analysis. If you’re in a hot industry, or you start doing really well, you might find a lot of new competitors enter the market.
Ask yourself:
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How hard would it be for someone new to come in with the exact same idea and take customers away from me?
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How easy would it be for an established business to tweak their service or products to take away my competitive advantage?
The harder it is for competitors to replicate what you’re doing, the more comfortable you can feel.
Start your competitor analysis now
Competitor analysis will help with your business planning, your product or service development, and your marketing. An honest review of who’s out there and what they do well will help you find a part of the market you can own.
Find out who your competitors are, what niche they each serve, and where their strengths lie. Use the information to figure out where you fit in the market, and how you can maximise that position.
Whether you’re a new business or generations old, it’s never too soon to get a competitive strategy together.
Reproduced with the permission of Xero.
Xero is software designed to make life better for small businesses and their advisors. Its online accounting platform provides the foundation on which businesses can build a complete business solution. It connects businesses with their bank, accounting tools, their accountant, payment services and third-party apps, so everything is securely available at any time, on any device.
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