In business, you ignore the competition at your peril. Competitor companies are chasing the same customers and cash as you, so you need to be aware of who they are, what they do and how you measure up. Once you know that, you can start putting a strategy in place to get ahead.

What is competitor analysis?

Competitor analysis is the systematic process of researching and reviewing your competitors’:

  • business structure
  • product or services
  • sales and marketing strategy

It helps you understand who you’re up against, how they operate and what steps you can take to beat them compete effectively.

Competitor analysis equips you with information that will help you:

  • understand how your brand fits in the market
  • make strategic marketing decisions such as pricing, promotion and processes
  • identify threats and opportunities for your business

This can create significant competitive advantage. And since you’ll be using information in the public domain – not hacking into competitors’ servers or planting spies - it is 100% legal to do!

How do you do competitor analysis?

There are four simple steps to completing competitor analysis.

  1. Identify your competitors
  2. Research their business
  3. Record and analyse your findings
  4. Take action

We’ll explore each of these steps in more detail below. We’ve provided a Competitor Analysis Grid template to help you get started too.

To get the most benefit out of competitor analysis, it is important is to be honest and thorough. It can be daunting to think about the competition but by being realistic now, you’ll be better equipped to deal with any challenges they throw your way.

1. Identify your competitors

Unless you have a unique product or service, you’ll definitely have competitors who want to sell to the same customers as you. Even if you do have a unique product, you’re still competing for customers’ money against everything else they can choose to spend it on. So the first step to competitor analysis is to list your competitors.

Competitors can be ‘direct’, ‘indirect’ and 'potential'.

Direct competitors

  • Direct competitors target the same customers as you and offer the same service or product as you.
  • Your aim is to meet those customers’ needs more effectively than competitors, so they choose to buy your product.

Indirect competitors

  • Indirect competitors compete for the same customers but in a different way.
  • Your aim is to persuade customers that they want to spend their money with you instead of another way.

Potential competitors

  • Potential competitors are any competitors who may be entering the market in the next twelve months.
  • These might be entirely new businesses or existing businesses expanding their offer.

Once you have a long list of competitors, reduce this down to two or three companies that are the biggest threat to your business.

Here's an example of how the competitors for an independent cinema might look:

Direct competitors Indirect competitors Potential competitors
Multiplex A, 2 miles away Local theatre, 0.5 miles away Town Hall considering showing films monthly
Multiplex B, 6 miles away Netflix / Sky Movies
Independent Cinema C, 8 miles away Other local leisure facilities

We’ll revisit the cinema later to see how they use their competitor analysis to inform their marketing strategy.

2. Research their businesses

Now you have your list of key competitors, you need to get to know them better.

The sort of information you need to collect includes:

  • The business itself – size; staffing; locations; what, where and how they sell
  • Product / services – what they offer; product features and benefits
  • Marketing strategy – how they promote their products; what channels they use; website and social media performance
  • Strengths and weaknesses – Do they have a great product but poor customer service? Are they famed for their friendliness but tolerated for their prices? Using a SWOT analysis can help here.
  • Opportunities and threats – What threats do they pose - eg they could undercut your prices? What opportunities do they present – eg you could undercut their prices?!
  • Market outlook – Is the market growing or shrinking? Is it diversifying or niching down?

There are lots of places you can look for information.

  • Their own channels – How do they present themselves on their website and social media? What does this tell you about how they want to be perceived and who they’re targeting? What keywords / SEO tactics does their website use?
  • Other people’s channels – Check out reviews on third party websites (such as Trip Advisor, Amazon, Feefo etc) to see what customers really think about them, especially areas where they need to improve.
  • The media – What do the press say about your competitors? Is public opinion in their favour or against them?
  • Trade press – What do trade magazines say about their businesses? What do they predict for them in the future?

3. Record and analyse your findings

Once you’ve done your research, you need to make sense of it all. The raw information by itself isn’t much use. But it becomes very powerful when you use it to create a competitive advantage for your business.

Use our Competitor Analysis Grid template to help you get started. We’ve filled it in with the information our imaginary independent cinema has uncovered, so you can see how to fill it in. This is just a starting point. Feel free to add or delete content to suit your needs.

4. Take action

Now you’ve recorded and analysed the information about your competitors, you should be able to spot some opportunities to gain a competitive advantage.

For example:

  • Online reviews complain that their products break after a few uses
  • They charge more than you’d need to
  • Their premises are old-fashioned

You might also have identified some threats that they pose for your business:

  • They produce larger quantities than you can and therefore achieve economies of scale
  • They have secured a prime spot in your preferred location
  • Their website ranks more highly in search engine results than yours

This sort of information can provide a steer to your future marketing strategy.

For example, you can exploit their weaknesses by promoting your product as being highly reliable and receiving excellent customer reviews.

Meanwhile, you can work hard to improve search engine optimisation on your website and use paid advertising to drive customers directly to your site.

Remember our independent cinema?

They’ve completed their competitor analysis and decided to take action.

Faced with stiff competition from multiplexes, they’ve decided to compete on customer experience and price.

They are:

  • promoting their lower prices and ticket/snack packages
  • training staff to continue to deliver exceptional customer service
  • using the back of their tickets to encourage customers to review them online

Concerned about falling cinema attendance generally, they’ve joined forced with the other local independent cinema to joint fund a marketing campaign to remind people that the cinema is:

  • more affordable than the theatre
  • more sociable than staying at home
  • more relaxing than going to the gym

They hope this will be a winning combination that attracts new customers. And, of course, they'll assess the success of this strategy after a few months.

Who are the competitors for your business? What information can help you get the upper hand? What do you need to develop to dodge any risks your competitors represent?

Want to learn more about the fundamentals of marketing? Read our Marketing 101 article that introduces key concepts for startups.

Download your Ultimate Guide to Starting a Business now, for free!