There are few industries, if any, where competition does not exist. Even in fields as specialized and demanding as aircraft manufacturing, you can count on at least a handful of companies furiously competing for business. If anything, competition is what gives the practice of business its flavor, its variety, its drive to reinvent itself and to change. Competition is what makes business interesting.
To that end, a fundamental part of success in business is overcoming the competition. Although victory in business is not “zero sum”, there remains an understandable drive to prove your company’s dominance and superiority over the competition. Thus, when many companies find themselves struggling to find a new direction, they turn to competitive analysis in order to rediscover their own strengths and to determine how best to overcome their rivals.
The Basics of Competitive Analysis
Sun Tzu, in his epochal (and beloved-in-business-school) text The Art of War, dictates that an important part of success in war is the use of knowledge; specifically, that “if you know the enemy and know yourself, you need not fear the result of a hundred battles”. In our day and age, one can “know their enemies” through the use of competitive analysis.
As the name suggests, competitive analysis is a formalized process of evaluating the business practices of your competitors, whether they’re your company’s industry rival or just the shop down the street. On a fundamental level, competitive analysis is “a statement of [your] business strategy and how it relates to the competition.”
Standard competitive analysis involves taking a look at your competitor’s strengths, weaknesses, marketing strategies, and their overall value proposition. Even if your company is selling the exact same products as the competition, there may be a number of different factors explaining their success or failure – and that’s to say nothing of industries like software or services, wherein many companies are selling similar (but not identical) offerings.
It’s worth noting that competitive analysis involves taking a look at both your current competitors as well as your potential competitors, particularly in age where companies are beginning to operate in a multitude of industries.
Specifically, competitive analysis examines a number of different aspects of your competitor’s business activities, including:
- Service level
- Social media activity (such as Twitter mentions)
- Marketing strategies
- Acquisitions or mergers
It’s tempting to use analysis as a simple barometer of success or failure, but it’s often much more useful to use it to gain a holistic understanding of your competition’s progress. They may boast of high revenue figures, but they may be struggling to establish a sustainable pricing plan; some companies may loudly tout their social media infamy while secretly scrambling to resolve longstanding product issues.
Why Competitive Analysis is Critical
Competitive analysis enables you to understand where your competitors are, so that you can gain a better idea of where your company needs to go.
The most effective use of analysis will give your organization an idea of things that need to be improved, as well as things that need to continue being done. If you know exactly why your customers come to you instead of your competition, it only makes sense to double down on whatever that appealing factor may be; in that same vein, learning what makes your customers choose “the other guy” instead of you can help improve your marketing efforts and your overall prospect for success.
In a sense, competitive analysis lets your company know where to compete, as well as how to compete. The knowledge of your competitor’s strengths and weaknesses will ultimately help you use your marketing resources more efficiently and effectively.