How a Competitor Analysis Can Help Boost Your Business

What is a Competitor Analysis?

You’ve probably heard the quote: “Know your enemy.” But it’s only half of the message.

A more complete translation of the quote — which is derived from the writing of Sun Tzu — is: “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”

While referring to your competitors as enemies might be a bit over-the-top, there’s some truth to be gleaned from the sentiment. Every small business owner should try to be keenly aware of their competitors’ strengths and weaknesses and how their own business stacks up against them. Having that knowledge can help your business succeed over time.

One way to accomplish this is to perform a competitor analysis, sometimes referred to as a competitive analysis. This type of analysis involves identifying your competitors and researching how they market their business. For example, take a look at their social media presence and whether they buy ad space in newspapers. Each piece of information you learn can be helpful in your analysis .

If you’re wondering what exact types of data you’ll want to look at and how to find it, sit tight. We’ll dive into that in a moment. But first, let’s look at why performing a competitor analysis can be important to your business.

Why Do a Competitor Analysis?

As a small business owner, you probably have some idea of what it’s like to be the underdog. There will always be bigger businesses and national chains trying to dominate your industry. Not to mention that there are also small businesses vying for the same client base as you.

It’s important that you consider finding ways to outperform your direct competitors. You may not be working with as many resources as larger companies, so trying to compete with these big fish may feel like an uphill battle.You can, however, learn a lot from looking at how they market themselves, what they offer, and what their customers say about them. This can help you figure out what your small business can offer that a larger one may struggle to provide.

Analyzing your small business competitors is just as important. Much of a small business’s ability to gain new customers depends on word-of-mouth marketing and referrals. These small businesses are typically competing in the same arena as you, with similar resources and capital.

Researching competitors’ business and marketing strategies can benefit your small business in multiple ways, such as:

• Learning what your competitors are offering, and in turn identifying your own product’s unique value proposition
• Seeing what they may be doing right so you can apply their tactics to your own business model
• Seeing where they may be falling short so you can avoid their mistakes
• Comparing competitors against your business to find opportunities to outperform them
• Learning what the competitors are missing by researching customer reviews
• Identifying trends in your industry
• Building a roadmap for your small business’s future growth

How to Do a Competitor Analysis

1. Identify the competition.

Your competitors aren’t just the businesses in your backyard. Modern technology has put just about everything at customers’ fingertips. Depending on your industry, your competitors could be anywhere.

Broadening your perspective will help you to figure out who your competitors are. Think about what you offer. Where would your clients go for those goods and services if not for you? It’s understandable to not know offhand, so your first step might be to conduct a basic web search for what you provide and see which companies come up in your area. You can even ask your new clients which businesses they considered before choosing yours.

There are three main types of competitors:

• DIRECT COMPETITORS. These are small businesses that are the most similar to yours. For example, if you own a flower shop, your direct competitors will be other florists in your area.
• INDIRECT COMPETITORS. These will be businesses that offer a different range of goods and services, but have some overlap. This might be farm stands and grocery stores. They aren’t flower shops, but may offer flower arrangements in addition to their other offerings.
• REPLACEMENT COMPETITORS. These are a little more difficult to suss out. A replacement competitor is a business that exists outside your specific industry, but they can satisfy a similar niche. For a florist, this might be online businesses where you can order flowers and gift baskets and have them delivered directly to the recipient’s door.

While analyzing all three categories can prove helpful, your top priorities should likely be your direct and indirect competitors. They occupy similar roles as your small business and will likely be vying for the same customer base.

Once you’ve identified your competitors, organize them into a spreadsheet or similar grid with the names on one side and the various areas you’ll be analyzing across the top. The steps that follow this should provide a good idea of which areas you’ll want to include in your analysis. Creating a matrix can help you make direct comparisons between the competitors, and it may be easier to spot trends.

2. Research each business.

Your next step should be to gather some basic information about each competitor you plan to analyze. Think about sports. Do you think a football team goes into a game without scouting their opponents? Probably not. Instead, they probably look at the rival team’s players, how much experience they have, and what techniques they employ. This part of the competitor analysis will be similar. You’ll want to gather fundamental data such as:

• The history of the company. When was it founded? Who is the owner? Where did they get funding?
• Their location. This could help you determine whether or not you’re competing for the same local customers, or if you serve different neighborhoods.
• The size of the company. How many employees do they have? How much revenue do they generate? How robust is their customer base?

3. Figure out the customers they target.

Creating a profile of the types of customers your competitors are trying to draw is another essential part of the competitor analysis process. Seeing who they target could tell you which customers you’re competing for. It also can reveal demographics your competitors aren’t reaching — this can be a great opportunity to target those demographics yourself. Here’s how to get started on creating a customer profile:

• Check the business’s mission statement or any other website or marketing content that gives similar insight
• Pay attention to how they communicate and what kind of language they use
• Take a look at their social media and see how they engage with followers
• Consider their content strategy
• Look for ads, commercials, and any other marketing material they’ve produced

Keep an eye out for patterns. How a small business describes, comports, and markets itself can tell you a lot about who their target customers are. Are they active on social media and adept at using it? Is their marketing luxe and glossy? Do they focus on being family-owned with a long history? The data you gather can help you understand the age, socioeconomic status, and other demographics they’re targeting.

4. Products and pricing.

What exactly do your competitors offer? It may seem like a basic question, but it’s crucial to consider when learning more about other businesses in your market. Mailchimp recommends looking at “the 4 P’s.” These are:

1. Product. What are they selling? What services do they offer?
2. Price. How much do they charge? Is it a subscription-based company? How high is the quality for the price?
3. Promotion. What marketing channels are they using? What are their selling points?
4. Place. Where are the sales taking place — online or in-store? Do they partner with suppliers?

Depending on your industry, you may consider customizing these focus points to better suit your needs. For example, if you run an online business and your competitors are online too, “place” might not be the most useful factor to look at. You might, instead, want to look at your competitors’ website layout or how their point-of-sale systems work.

5. Look for their strengths and weaknesses — and your own.

Now that you’ve gathered relevant information about your competitors, it’s time to analyze the data. The information you’ve gathered should give you a rough idea of how they’re trying to market themselves and what they’re trying to achieve. Look at the big picture — what’s working for them? Are they achieving their intended end goal? Where are they falling short? Do they run a lot of promotions and sales? Are they spending money on PPC or social media ads?

Look at your own strategies and goals as well. What’s working? What isn’t? Compare your business with its competitors. Your competitors’ weaknesses could be opportunities for you to outperform them. One of their weaknesses could be an area where your business excels. Playing to your strengths could help set you ahead of the competition.

What is a SWOT Analysis?

When you begin researching your competition, you might start thinking about your own business strategy and whether it needs some work. This is where a SWOT analysis can come in handy. A SWOT analysis is a technique used to put your business into perspective. It involves looking at your business through the following four lenses:

1. Strengths — what your business does well
2. Weaknesses — where your business is falling short
3. Opportunities — areas that could help your business stand out
4. Threats — obstacles that could hold you back

Conducting a competitor analysis is an important way to understand other businesses in your market. But a SWOT analysis is a useful way to understand your own business. Identifying what you do well and where you can improve can help you strengthen your business model. Doing so can be a great companion to a competitor analysis.

Don’t Forget to Look at Your Insurance

It’s important to focus on your small business’s strengths. They’re your selling points, your passion, and what keep customers coming back. But it’s also crucial that you keep an eye out for areas where you can improve your business. Every small business has its weaknesses. Don’t let your business insurance be one of them.

Simply Business® can help with that. We work with leading national insurance carriers so you can compare coverage options to find what works best for your business. With our free online quote tool, you can have a quote ready quickly. With options including general liability, workers’ compensation, and inland marine, Simply Business can help you find the coverage you need to help protect your business.

Analyze This

“Never venture, never win!”

Sun Tzu may have been talking about military action, but the sentiment reaches far beyond his original intent. He understood that in order to succeed, you must occasionally go out on a limb. There’s no complete certainty in life, and certainly not in owning a small business.

The truth is that no small business is free from risks — even yours. Don’t let those risks define you. Your weaknesses are just opportunities to grow and outshine the competition.

Knowing your competitors — as well as yourself — could help you identify ways to offer something different and set your business apart. What your competitors do poorly is just as important as what they do well. Knowing their weaknesses could help you find areas they’re overlooking. It may feel risky to change your business model if you decide to do it, but it might just be a risk worth taking. Let learning how to adapt become your greatest strength.