What is Competitive analysis? 

Competitive analysis involves identifying your direct and indirect competitors using research to reveal their strengths and weaknesses in relation to your own.  

Direct competitors market the same product to the same audience as you, while indirect competitors market the same product to a different audience. After identifying your competitors, you can use the information you gather to see where you stand in the market landscape.  

What to include in a competitive analysis

The purpose of this type of analysis is to get a competitive advantage in the market and improve your business strategy. Without a competitive analysis, it’s difficult to know what others are doing to win clients or customers in your target market. A competitive analysis report may include:

• A description of your company’s target market

• Details about your product or service versus the competitors’

• Current and projected market share, sales, and revenues

• Pricing comparison

• Marketing and social media strategy analysis

• Differences in customer ratings

Benefits of conducting competitor analysis

A competitor analysis offers several benefits, including: 

• Understanding industry standards so that you can meet and exceed them   

• Discovering untapped niche markets  

• Differentiating products and services

• Fulfilling customers’ desires and solving their problems better than competitors

• Distinguishing your brand

• Standing out in your marketing 

• Measuring your growth 

How to do a competitive analysis

1. Identifying Competitors 

The first step in a competitor analysis is to identify who the competitors are in the market. Competitors can include both direct competitors (those offering similar products or services) and indirect competitors (those offering substitute products or services).

2. Gathering Information

Once competitors are identified, the next step is to gather information about them. This information can be collected from various sources, including public records, industry reports, company websites, press releases, social media, customer reviews, and trade publications.

Key areas to focus on include competitors’ products or services, pricing strategies, target markets, distribution channels, marketing tactics, strengths, weaknesses, and financial performance.

3. Analyzing Strengths and Weaknesses

Competitor analysis involves assessing the strengths and weaknesses of each competitor relative to your own business. This may include evaluating factors such as product quality, brand reputation, customer service, innovation capabilities, market share, financial resources, and competitive advantages.

SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) can be a useful framework for organizing and analyzing this information.

4. Benchmarking

Benchmarking involves comparing your own business performance and capabilities against those of competitors. This can help identify areas where your business excels and areas where improvements may be needed.

Benchmarking metrics may include market share, customer satisfaction ratings, pricing levels, product features, and financial performance.

5. Drawing Insights and Formulating Strategies

The final step in a competitor analysis is to draw insights from the gathered information and use it to inform strategic decision-making. This may involve identifying opportunities to capitalize on competitors’ weaknesses, mitigating threats posed by competitors’ strengths, and adapting or refining your own business strategies based on competitive dynamics.

Competitor analysis can also help identify emerging trends and market opportunities that may influence future strategic directions.

Overall, competitor analysis is a valuable tool for businesses seeking to understand their competitive landscape, identify opportunities and threats, and develop strategies to gain a competitive advantage in the market. It provides insights that can inform decision-making across various aspects of business operations, including product development, marketing, pricing, and customer service.

Competitor Analysis Example

Here’s an example of competitor analysis for a fictional company, “XYZ Tech,” which produces smartphones:

1. Identifying Competitors

Direct Competitors:

• Apple Inc. (iPhone)

• Samsung Electronics Co., Ltd. (Galaxy series)

• Huawei Technologies Co., Ltd. (Mate series)

• Google LLC (Pixel series)

Indirect Competitors:

• OnePlus (OnePlus series)

• Xiaomi Corporation (Mi series)

• Oppo Electronics Corp. (Find series)

• Vivo Communication Technology Co., Ltd. (X series)

2. Gathering Information:

• Product Analysis: Reviewing specifications, features, and performance of competitors’ smartphones compared to XYZ Tech’s offerings.

• Market Share: Obtaining data on market share percentages for each competitor in the smartphone market.

• Pricing Strategies: Analyzing pricing structures, discounts, and promotions offered by competitors.

• Marketing Tactics: Reviewing competitors’ marketing campaigns, advertisements, and social media presence.

• Customer Reviews: Collecting feedback from customers regarding their experiences with competitors’ smartphones.

• Financial Performance: Studying financial reports and earnings statements to assess competitors’ revenue, profitability, and growth trends.

3. Analyzing Strengths and Weaknesses:

Strengths

• Apple Inc.: Strong brand reputation, loyal customer base, ecosystem integration (e.g., iOS, Mac, iCloud).

• Samsung Electronics: Wide product range, innovative features (e.g., foldable phones), strong distribution channels.

• OnePlus: High-performance devices at competitive prices, strong community engagement.

Weaknesses

• Apple Inc.: High prices, limited customization options, dependency on iPhone sales for revenue.

• Huawei Technologies: Challenges in accessing certain markets due to geopolitical issues, lack of access to Google services.

• Oppo and Vivo: Limited brand recognition outside of Asian markets, perceived as mid-range brands.

• Xiaomi: Perception of lower quality compared to premium brands, limited presence in certain markets.

4. Drawing Insights and Formulating Strategies

Opportunities

• Identify gaps in competitors’ product offerings and capitalize on them with innovative features or new product lines.

• Leverage customer feedback to improve XYZ Tech’s products and address pain points experienced with competitors’ devices.

Threats

• Competitors’ aggressive pricing or marketing campaigns may erode XYZ Tech’s market share.

• Technological advancements or shifts in consumer preferences may render XYZ Tech’s products obsolete if not adapted quickly.

5. Strategies

• Focus on differentiation through unique features, design, or user experience to stand out from competitors.

• Invest in research and development to maintain technological leadership and innovation.

• Develop strategic partnerships or alliances to expand distribution channels and increase market reach.

• Implement targeted marketing campaigns to highlight XYZ Tech’s strengths and address perceived weaknesses compared to competitors.

This example demonstrates how competitor analysis can provide valuable insights for XYZ Tech to understand its competitive landscape, identify opportunities for growth, and formulate strategic decisions to gain a competitive advantage in the smartphone market.

Porters Five Forces Model of Competition

Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization’s strategy. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. According to Porter, the nature of competition in any industry is personified in the following five forces:

1. Threat of new potential entrants

2. Threat of substitute product/services

3. Bargaining power of suppliers

4. Bargaining power of buyers

5. Rivalry among current competitors

The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.

Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potential competitors

Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are-

1. • Economies of scale

   • Brand loyalty

   • Government Regulation

   • Customer Switching Costs

   • Absolute Cost Advantage

   • Ease in distribution

   • Strong Capital base

2. Rivalry among current competitors

Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors:

1. • Extent of exit barriers

   • Amount of fixed cost

   • Competitive structure of industry

   • Presence of global customers

   • Absence of switching costs

   • Growth Rate of industry

   • Demand conditions

3. Bargaining Power of Buyers

Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers.

Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product.

Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.

4. Bargaining Power of Suppliers

Suppliers refer to the firms that provide inputs to the industry.

Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways.

Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.

5. Threat of Substitute products

Substitute products refer to the products having ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry.
Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry.

This five forces model also help in making strategic decisions as it is used by the managers to determine industry’s competitive structure.