How competition could be your secret weapon to success.
Often the key to success in any business relates to how you stack up against the competition. In fact, they might very well be why you succeed. Although it might sound strange, competition is often what drives production, development, and better service. In order to know what your competition is doing, you must study them. It’s called a competitive analysis, and it’s one of the most important tasks you can do as a business owner.
Today, we want to discuss why it’s so important and also how you can go about doing one.
First, 8 reasons why the competition is your best business ally
1. It helps you avoid becoming complacent. According to Entrepreneur Magazine, “Sole suppliers in an industry quickly stop innovating simply because they no longer have any need to.” Having competition nipping at your heels keeps you moving forward. It forces you to keep adapting, innovating, and improving in order to stay in the market.
2. It helps you create brand awareness. Competition pushes you to find ways to stand out and become a leading authority in your field.
3. It helps you develop self-awareness. Watching what the competition is doing well (or not well) teaches you to assess your own company’s strengths and weaknesses so that you can create more value and better service for your customers.
4. It encourages differentiation. Competition requires you to take and extra step to offer something more. You must constantly prove why customers should choose your company over another. “Differentiate your offerings with the goal of creating tremendous value for the users you serve,” according to Entrepreneur Magazine.
5. It helps you identify and take advantage of new trends. Your competition is often the best way to become aware of your industry’s market trends. This gives you an opportunity to promote an emerging trend that will have buyers excited about your product or service.
6. Competition can become an unexpected partner. Sometimes the best way to compete with someone is to join forces. Create alliances with other businesses in your field to exchange technology, knowledge, resources, tools, and market. You can also cross-promote each other’s products.
7. It leads to mutual learning. You will probably learn more about your market, customers, and trends by watching the competition. The knowledge and resources they have may be both better and different than yours. Learn how they manage, and then adopt the practices that work best for your company.
8. It can help you develop a niche. To build a profitable business, focus your efforts on conquering a smaller segment of the market. By narrowing your niche, you can develop a competitive edge that deters further competition.
8. How to do a competitive analysis
Step 1: Identify the current and potential competition. According to another Entrepreneur article you can, “Group all your competitors by the degree to which they contend for the buyer’s dollar or…group competitors according to their various competitive strategies so you understand what motivates them.”
Step 2: Once you have identified your competitors, you want to analyze them. Look at their business strategies, paying special attention to their strengths and weaknesses. Why look at both? Their strengths can serve as a guide to how you should do business. Weaknesses can show you where the competition is most vulnerable and help you find ways to exploit that to your benefit.
The strength and weakness evaluation should cover four areas, according to Entrepreneur Magazine:
- The reasons behind successful as well as unsuccessful firms
- Prime customer motivators (in other words, why did the customer choose them)
- Major component costs
- Industry mobility barriers
Step 3: Create a competitive strengths grid. This grid will include key assets and skills in a particular area, along with a notation of “weakness” and “strength” for each competitor.
The five areas should include: product, distribution, pricing, promotion, and advertising.
The competitive analysis is complete…now what?
Once you’ve finished collecting the data, it’s time to actually analyze. You want to look for a few things.
Market gaps – You can start to identify unserved or underserved gaps in the market. According to Small Business Chronicle, “A competitor map may reveal…that most competitors in the local area charge premium prices for higher quality products, while the bargain segment of the market remains underserved.”
Product development – You will soon learn what your competition has in development. You’ll also be able to see ways they are improving their product or service. “Knowing the directions competitors plan to take for their product lines can help a company develop products that trump competitors in terms of price, functionality or quality,” according to Small Business Chronicle.
Market trends – We mentioned the importance of spotting new market trends before. Your competitive analysis will not only identify these trends, but develop ways to exploit them.
Marketing practices – It’s not enough to provide a great product or give exceptional customer service (although if you don’t have those two things, good luck in succeeding). You must study your competition’s marketing strategies. Find out how they’re branding themselves as a company as well as their products. What channels do they use? How much money are they spending? You also want to pay attention to what customers think of your competitors. According to Small Business Chronicle, “What consumers think they are buying can be more important than what they are actually buying, and it is advantageous to know what consumers think about your competitors’ brands.”
With these tips of creating a competitive analysis, you will be better able to gauge what your competition is doing and determine how to do it better. If you need help developing competitive strategy, No Boundaries Advisors can help. Contact us today for a consultation.