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For anyone launching a small business, add this to your to-do list: Study the competition.
If you’re starting a new business, chances are you’re doing it because you saw an opening in the market. You’re providing a unique solution, a better product, or a superior service for consumers. Those differentiators – unique, better, superior – are used in comparison to the competition. This research is critical to a successful launch. As a new business owner, you must know the playing field. How are they doing things? How can you model your business initiatives on their successes (while avoiding the pitfalls)? A competitor analysis will help answer those questions from day one.
According to Indeed (a BBB Accredited Business), a competitor analysis is the process of researching your competitors, their audience, and their actions. When conducting one, you'll be able to identify:
- Who your competitors are
- Their marketing/business strategies
- What's working for them, and what isn't
- Who their (and your) audience is
- Market trends/gaps
A small business owner's most common mistake is assuming their competition is just like them. So, how do you know if you are really competing with your competition? Follow these five simple steps:
1. Know your brand, know your goals
Before you begin researching your competition, take a moment to define your brand by answering these questions:
- Who are you?
- What are your products and/or services?
- What are your customers' needs?
- What are your goals, and how will you achieve them?
- How are you different?
- What are you known for?
- What are your strengths/weaknesses?
Answering these questions will give you a baseline to reference when analyzing your competitors.
2. Identify your competitors
HubSpot stresses the importance of analyzing your direct competition, not your indirect competition. Your direct competition is comprised of those that share your niche, location and target audience. On the other hand, your indirect competitors may offer different products or services that are in the same category. Think lumberyards versus companies that manufacture composite building materials; both might fulfill the same need, but they are not directly competing with each other.
Challenge yourself to identify at least four direct competitors to research. Then, begin to collect the relevant data. HubSpot also offers free templates as part of its competitive analysis kit.
3. Identify shared products or services
Knowing what your competitors offer gives you the inside edge on positioning your brand. As you collect more data, remember to stay organized by using a template or creating your own spreadsheet. Mailchimp refers to this as your “competitor matrix.”
As you evaluate your competitors’ products and services, consider the following differentiators:
- Products
- Features
- Price
- Promotions
- Mission statements
- Operations radius
- Website design/usability
- Social media presence
As you input this information into your analysis, begin to note the takeaways. Where are competitors succeeding? Where do they rate poorly? And most importantly, where do you see opportunities to improve as you plan your business launch?
4. Identify your target audience
A successful business launch involves knowing who you’re selling to. You’ve likely already devoted some time to this research, but at this point, your analysis efforts should start to provide even more clarity on who your customer is.
This might be easier to glean from resources like reviews and social media posts but do your due diligence to see who your competitors are truly reaching. Study their messaging, design choices, and how they connect with customers to inform how you’ll move forward in cultivating your audience.
5. Analyze your competitors’ marketing strategy
While this may seem daunting, you’ve already done most of the heavy lifting. Refer to your matrix and discover your competitors’ marketing tactics.
- Visit their websites to discover how they present their products or services. How is the customer journey guided? What resources do they provide on their site?
- Look at their social media feeds to see what they're promoting when they post and who they’re interacting with.
- Review their advertising. Do you see trends in what they’re offering? What do their ads promote? What discounts and deals do they offer?
- Read customer reviews to discover new insights. What are the recurring themes for positive experiences? What are the common issues for negative reviews?
- Search online for press releases. How a company communicates with these announcements is a valuable insight into how they want to be presented publicly.
These will help you gain further insight into your competitors' actions and why. Based on their interactions and audience, you'll also get an idea of what's working and what isn't.
Over to you
Business owners want to get inside their competitors’ heads to outperform them. Unfortunately, most don't know just how easy it can be! A competitor analysis will not only help you understand your competition, but it will also help you better understand your market, your niche, and what your customers will expect from you.
The good news? If you'd like help with any of the tips outlined above, there are dozens of reputable resources available to help you create and implement a detailed competitor analysis for your business strategy.
You can find more tips on growing your small business at the BBB.
Visit BBB's new business hub to learn more about starting your own business!
The BBB serving the Great West + Pacific and the BBB in Charlotte, NC, contributed to this article.