4 steps for a successful competitive analysis

While your company might be doing well now, the day could come when it has to determine its future sustainability. Here’s a look at competitive analysis, or the art of sizing up the competition… and then putting that knowledge to good use.

Legendary investor Warren Buffett preferred companies who continually outdid the competition in their sector of activity. The Oracle of Omaha makes no secret of his strategy: He’s looking for “companies that are strong economic castles surrounded by uncrossable moats.” According to this theory, directors need to arm themselves with the most solid competitive advantage possible to prevent rivals from taking hold of a larger share of the market. Conversely, just think about the hotel business and its inability to foresee the spectacular rise of Airbnb…

This is why a competitive analysis is essential. Your rivals’ ways of doing things are a veritable gold mine of information for determining the sustainability of your competitive advantage. Although your products and services can sometimes have certain characteristics in common with those of your rivals, the latter may innovate more in their ways of doing business. A competitive advantage allows you to identify the key factors for success in your sector of activity. Although there are several ways of performing such an analysis, there are four steps that are essential no matter your approach.

1) Identify all your direct and indirect competitors

Who are your competitors? The competition is not merely those companies that offer the same types of products within the same territory—indirect competitors also need to be monitored.

Indirect competitors offer different products that are nevertheless likely to respond to the needs of your targeted customers.

In order not to leave off any adversaries from this list, combine several methods of information collection. Put yourself in a customer’s shoes: Where would you go to find the sought-after item or service? Take a look at social networks and make use of search engines. By looking for keywords linked to your target market and your products and services, you can discover competitors that might otherwise slip under your radar. This kind of “inventory-taking” is essential—the other steps that follow will depend on it!

2) Make a comparative table of your competitors

Next, data collection is essential to create a description of every competitor identified in the previous step. To facilitate the task, it’s advisable to draw up a comparative table of the competition. Criteria to consider are added to rows in the first column, while the remaining columns are assigned to each competitor.

Since the goal of the competitive analysis is to anticipate any potential evolutions that could put your competitive edge in danger, you need to very finely sift through your rivals. For example, some essential criteria to include are:

  • distinctive characteristics of the products or services they offer;
  • their pricing policy;
  • their market positioning;
  • the portion of the market they occupy.

Other data can also shed additional light on the subject, such as their:

  • sales revenue;
  • profitability;
  • number of employees;
  • warranty policy.

You will sometimes need to play the detective to ferret out the information you are looking for. For your competitors that are publicly traded on a stock exchange, the search for information will be made easier by the quarterly publication of their financial results. Otherwise, look through the annual rankings offered by some specialized publications, such as “The top 500 SMEs of the year.” Local business news can also be useful, as can a call to any associations or other groups that represent your industry.

3) Analyze the listed data

Several tools allow you to use the collected data to perform a more in-depth analysis. Michael Porter’s competitive analysis method is still perhaps the most well known. There is abundant literature on the subject. This template highlights the five elements a company can focus on to optimize its competitive advantage. The analysis will reveal:

  • current competitors;
  • potential entrants to the market, meaning those who could break through the barriers to entry and become competitors;
  • available products for substitution that could supplant the current product offering;
  • customers’ bargaining power and whether they have other options to consider;
  • providers’ bargaining power and whether the SME is in a strong position to negotiate advantageous conditions in everything related to the supplier chain.

A SWOT analysis—strengths, weaknesses, opportunities and threats—is another method for reaching the same goal. An analysis that can be performed on your SME and each of your competitors, a SWOT matrix simply summarizes the internal and external factors that can contribute to the success of your business. It’s important to use the matrix to list the strengths of your competitors and the ways you can outperform them, and to analyze their weaknesses in order to learn from them. Any opportunity or potential threat they could take advantage of must be indicated, as well as the ways to take advantage of or guard against them.

4) Draw up a plan of action

Now it’s time to draw some conclusions. Do you want to deploy a new strategy to break into your desired market? Do you need to anticipate your rivals’ reactions following your upcoming acquisition? And if a competitor wants to sell you their business, are you in a position to take advantage of the opportunity? No matter what the scenario, create an action plan. This will help you not only stay on course while you navigate the competitive landscape, but also allow you to protect your economic castle!