Sun Tzu - the brilliant military strategist who we in the business world will never tire of quoting - once said:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
Quotes like these hit the core of your common sense.
Of course, you have to know everything possible about your own organization if you want to survive in competition with numerous other businesses.
That’s the easy part.
But if you don’t understand your enemy, Sun Tzu warns:
“If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.”
What this means is, only knowing your business will keep you trapped in tight skirmishes for market share.
By knowing “your enemy” - your competition - you’re able to outmaneuver them and “win” in terms of revenue, profits, and customer loyalty.
But understanding your competition is very difficult.
We put together this ultimate guide to competitive analysis so you can get started on knowing your competition using a step-by-step methodology that will make this process a lot easier.
Plus, you’ll see various aspects of competitive analysis and the reasons why it’s so important.
Let’s start by diving into exactly what competitive analysis is.
What Is Competitive Analysis?
A competitive analysis is exactly how it sounds:
A deep dive into the important direct and indirect competitors in your industry and everything you can learn about them: products, sales and marketing strategies, business processes, and so on.
It’s also a way to identify how successful your competition is, what they’re doing right and wrong, and where they’re failing so you can fill the gap with your solutions.
What Is the Purpose of Competitive Analysis?
A survey conducted by Crayon, a competitive intelligence solution, found that 94% of businesses are investing in competitive intelligence.
According to that same survey, 90% of businesses say their industry is now more competitive.
Increased competition is one of the most important reasons to conduct an in-depth analysis of who they are, what they offer, and how to be better.
After conducting a competitive analysis, you’ll have a better grasp on the barriers to entry within a particular target market, the strengths and weaknesses of existing competitors, and possible advantages your business possesses you can use to gain the upper hand on rival firms.
What Is a Competitive Analysis Chart?
We’re going to show you specific ways to conduct a competitive analysis in the section, but before you get into the nitty-gritty, you have to understand that you’ll need a method for organizing the information you gather.
Competitive analysis charts help you structure and visualize the data you obtain for enhanced understanding and practical use.
Here are 5 charts you can use to organize the data you collect through a competitive analysis and present your findings to your team or decision-makers in your organization.
1. Radar Chart
A radar chart, also known as a spider chart or web chart, arranges data in a two-dimensional diagram on an X and Y-axis. But instead of plotting data from left to right or bottom to top, a radar chart goes from the center outward.
The X-axis is represented by the radius of the chart, the Y-axis by the circumference.
Radar charts are especially helpful in visualizing balance or imbalance in the data you plug in. An example of competitive analysis using radar charts would be plotting differences in product features, market share, marketing campaigns, prices of products, and any number of other characteristics between you and your competitors’ businesses.
2. Comparison Table
A comparison table is a common method for analyzing competitor analysis data. It’s probably the easiest chart to create.
What you have to do is make a list of factors you want to compare. Then score the list using numbers or some other graphical indicator for prioritizing these factors and arranging them in a useful hierarchy.
Have you ever shopped on Amazon and noticed that inside of a product listing Amazon compares the product you’re viewing against similar products?
They display different features on the left of the chart, with different products going across the top, and inside of this chart you’ll see how one product stacks up against another.
That’s a competitive analysis chart, and we recommend starting with a chart like this for your business because it’s fast and simple to create.
3. Scatter Plot
A scatter plot chart is a mathematical diagram that displays values of at least 2 variables for a data set. One variable for the horizontal axis and one for the vertical axis.
The points can be coded using different shapes, colors, and sizes.
For competitive analysis, the vertical axis could have different product features and the horizontal axis could have a numerical scale representing quality, like the numbers 1-10.
The points being plotted may represent different products.
So when organized on the competitive analysis chart, products that outperform others in specific feature categories will be plotted further on the right of the chart while products that underperform will be plotted on the left.
4. Bubble Chart
A bubble chart is a variation on the scatter chart. In this case, it allows you to visualize three dimensions of data: The first dimension is the horizontal axis, the second is the vertical axis, and the third is the size of the bubble points on the chart.
If you’re comparing your product against competitors’ products, you could make a bubble chart with the horizontal axis as the price for individual products, the vertical axis for the number of sales per month, and the size of the bubble point representing projected future growth.
5. Matrix Chart
A matrix chart displays your data set like a comparison table with added flexibility to show the relationship between 3 or more variables.
A matrix chart is commonly used, so you can find many examples of comparative analysis using this type of table.
One way you might use it is by putting a list of competitors on a vertical axis and characteristics like product quality, price, shipping speed, etc. across the horizontal axis.
Then use different colors along with numbers to give each competitor a score for each characteristic.
How to Do a Competitive Analysis
A competitive analysis shouldn’t be haphazardly attempted. It should be methodical and follow a logical process to stay organized and focused.
The steps you take will need to be well-planned by the team you put together for this task, but we created a simple, broad overview of the specific steps you may take below.
It’s meant to guide you toward the most productive use of your time and resources but it’s not at all comprehensive, so think of it as general advice rather than proper instructions.
Here’s how to run a competitive analysis in 4 steps.
Step 1: Research Your Industry
Analyzing your competitors should start with a deep examination of the industry you’re in. You want to get a “lay of the land” to understand the context in which you’re competing.
One way to do this is by using Porter’s Five Forces Analysis. It helps you map out the business environment you operate within and show you the “forces” that affect your profitability and long-term growth potential.
The five forces that -
The creator of this analysis method, Michael E. Porter, found these five forces that shape every market in every industry (with a few caveats):
- Competition in the industry
- Potential of new entrants into the industry
- Power of suppliers
- Power of customers
- Threat of substitute products
Here’s a rundown of how to do a competitive analysis using Porter’s Five Forces.
Competition in the industry
This is obviously the primary force that will affect the performance and life of your company. The more competitors you have to go up against, along with more products and services rivaling your own, the less power and influence you’ll tend to command.
If competition is low, you’ll tend to be able to grab more market share and even charge higher prices. Regardless, the first thing you’ll want to understand how many competitors you have and who they are.
Potential of new entrants into the industry
The power you command in your market will be affected by how easy or difficult it is for new entrants to break into your industry with their products and services.
The less money to spend, time to invest, and regulations to follow for a company to enter a market means significantly more competition over the long-run.
If you’re an established business, you would ideally want strong barriers to entry since then you have more influence in that market.
Power of suppliers
Suppliers can exercise considerable power over the bottom line of your business depending on what you need supplied, how much of it you’re buying, and how many suppliers can provide it.
If you need unique inputs that very few firms can supply, they will have more power in price negotiations and you will have less control over the quality of what is supplied.
The opposite is also true. If you need inputs that are easy to obtain and many suppliers are providing them, you’ll have more power in the trade relationship.
Power of customers
Customers are so powerful your business couldn’t exist without them. Their power over your business depends on many factors: the number of customers you have, how significant each customer is to your revenue, how much you would lose if customers switch companies, and how much it would cost to market to new customers.
If you sell high-priced products and services and only have a small base of customers, for example, then each one of them holds a lot of power and can upend your operations.
On the other hand, selling more affordable products and services with a much larger customer base diminishes the power each customer has and makes it easier for you to increase your prices and profitability.
Threat of substitutes
Substitutes are any alternatives that can be used in place of your product that are available to consumers. A substitute for Evernote is paper and pen. It’s not another product that Evernote is competing against, it’s a different expression of the primary actions that Evernote enables.
Consider the substitutes that threaten your power in your industry. The fewer there are, the easier it will be to dominate your market.
Step 2: Research Your Customers
What are you ultimately fighting for when battling your competition?
To win, you need to know them better than your rivals.
You need to figure out how they currently perceive your business and how they’ll look at you when you launch a new product or change an existing one.
You need to know how satisfied they are with your customer service, with the user experience of your products, and your range of offers.
You need to understand how potential customers prefer to be marketed to and how they interact and react to your campaigns.
All this and more needs to be known for you to have a fighting chance against competitors who have already courted a sizable portion of the market.
We recommend creating a customer persona to begin this type of research.
A customer persona, also known as a buyer persona, is a semi-fictional customer description based on your actual customers’ demographics, behavior, lifestyle, motivations, and challenges.
There are a number of ways to gather this information.
Surveys and interviews help you uncover the real motivations behind customer behavior that goes much deeper than general demographic info.
You can ask questions about their lifestyle, interests, and hobbies. The media they prefer to use. The problems they’re trying to solve and the solutions they’ve already tried. Even their objections to buying your product or a competitor’s.
Scouring social analytics is another great method for understanding customers.
Twitter and Facebook analytics will tell you what topics your target customers are sharing and posting. This tells you two things: what type of content you should create to attract your customers and what topics interest them the most, which can tell you even more about how to best serve them.
Step 3: Identify Competitors In Your Industry
Once you know your industry and your customers, it’s much easier to begin identifying competitors who pose a serious threat.
Start listing all the competitors you can find in your industry and separate them into two categories: direct and indirect.
Direct competitors offer similar products and services as your own that solve the same customer problems and operate within the same space as you and your customers (geographically and online).
Indirect competitors perform similar functions to solve similar customer problems but they are distinctly different from your products.
If you sell watches, you’re directly competing against an array of other brands. Similar products, similar customer problems, similar functions.
Your indirect competitors as a watch company are wall clocks, or any phone that tells time. All of these products solve the problem of knowing what time it is but do it in very different ways.
Step 4: Identify Important Features That Differentiate You from Each Competitor
Drilling down into what separates you from the competition helps you understand how to target the right customers and grow market share.
One way to do this is by using each product to try and understand the user’s point of view. If it’s a mobile game, download and play it many times. If it’s an e-commerce project, go through the experience of shopping for and checking out an item. If it’s a B2B product, sign up for a demonstration.
Make a list of your most important features first. Then, research each competitor and mark their most important features. Use one of the charts we discussed earlier to plot the data and draw a comparison.
How to Communicate Competitive Analysis Results to Your Team for Better Understanding
Gathering, organizing, and demonstrating the competitive analysis findings is the primary part of this process. But putting this data into real-world use means communicating it clearly and convincingly to the decision-makers in your company.
We believe fast and easy collaboration is a must-have for productive product discovery.
Our software allows any team member or department to host quick meetings through a webcam, even with everyone out of the office.
Technical demonstrations can be made into GIFs for better comprehension.
Images and texts can be displayed with annotated screenshots.
Plus, we’ve been ranked by G2 Crowd as one of the top sales enablement tools.