Competitor analysis is a key activity for any business, and your startup is certainly no exception. Remember this phrase: there are no startups without competitors.
When done properly, competitor analysis allows you to gather a wealth of useful information to identify your own and your rivals’ strengths and weaknesses (and much more). Too often, however, this particular analysis is not given the proper attention, because its decisive role in building a winning business strategy is not fully understood.
It is for this reason that, in the following lines, we will first address precisely the various reasons why competitor analysis is so important.
Why competitor analysis is important
Competitor analysis, also known as competitive analysis or benchmarking, consists as mentioned above in the process of identifying the strengths and weaknesses of rivals. In more practical terms, it takes the form of comparing one’s brand with a number of competing brands through the use of specific metrics.
When you conduct such an analysis, which is complementary to the market analysis, you need to consider sales strategies, marketing actions, prices, products or services, promotion channels, market share, and many other details that can help you learn more about each competitor’s strategies.
Analyzing your competition, specifically, serves you to:
- understand your industry and the competitive landscape;
- define your unique value proposition;
- derive benchmarks to assess your progress;
- identify competitors’ strategies for success;
- refine your marketing strategy to create or maintain a competitive advantage over rivals.
Remember that the information gathered through competitor analysis can be used by you not only to evaluate your current strategy but also, where necessary, to develop a new one.
Your goal, after all, must be to constantly improve yourself, to do better than your rivals (but not only). Henry Ford once said:
“The competitor to be feared is the one who never worries about you, but keeps doing his business better and better.”
First step of the analysis: identify your competitors
In order to be able to accurately identify who your competitors are and expand the effectiveness of your analysis, you need to be clear about the meaning of the term competitor: it is not only the one who offers the same product or service as you, but also the one who, through his or her activity, satisfies the same need or solves the same problem as you. Competitors, in fact, fall into two categories:
- direct competitors are all those businesses that offer a product or service similar enough to yours to replace it;
- indirect competitors offer products or services that, while not exactly the same as yours, meet the same need or solve the same problem.
For the sake of completeness, it is only fair for you to know that, to these two types, a third must be added: potential competitors. The latter are all competitors who are not currently selling the same products or services but may start doing so in the future. Keep an eye on them, too.
If, before now, you have never done a competitor analysis, the first step is to create a list of all the major players in your niche market. This list tells you who you might be competing with to get your audience’s attention and helps you understand who you need to focus on during your competitor analysis.
To create this list, you can start by brainstorming a list of competitors you already know (for example, you could reason about companies in your niche and city that offer the same products or services as you do). Alternatively, you can open Google and, moving as if you were the customer, search for the same things he would search for (remember: don’t search exclusively for the solution but also, indeed especially, for the problem).
If you think you need more professional methods that can offer deeper and more comprehensive online competitor research, you could resort to buying market analysis from specialized companies or using specific online research tools (such as Semrush).
Gathering information: what your competitors are doing
Once you have identified your competitors, you need to create a profile for each of them, indicating company size, location, history, and other essential information that you consider valuable. For example, let’s say one of your competitors has only been in existence for one or two years, has half your employees but has already managed to raise millions in funding: you will agree that this competitor would have all the makings of a serious threat to your startup.
Creating a profile with the above information, however, is not enough to understand who your competitors are and how they are positioned relative to you. The other aspects to investigate are the products (or services) your competitors offer, their pricing strategy, market positioning, target audience, and marketing strategy. Let’s explore these aspects one by one.
What products/services do they offer?
Knowing what products or services are offered by your competitors is very important, but this summary information is not enough: you need to ask yourself a series of specific questions about them and, most importantly, you need to do so for each competitor you have previously identified. Some of the basic questions you need to find answers to are as follows:
- are the products or services offered by the competitor consumer or niche? Are they high-end or low-end?
- have any of these products or services achieved market-leading status or otherwise been particularly successful?
- why do target customers choose the competitor’s product or service?
- is the competitor investing heavily in launching new products or services?
In answering these questions, pay particular attention to the most successful products or services for each competitor, compare this information with your own data, and note any trends.
What prices do they charge?
The analysis on the products or services offered by your competitors cannot be said to be complete if it does not also examine the prices at which they are sold: in particular, you need to analyze your competitors’ pricing strategies, including sales, discounts, free trials and other extra benefits associated with the sale of their products or services. In this very regard, it is very useful for you to ask yourself: is the regular and constant offer of discounts and promotions decisive in the purchase of the products or services they offer?
You should, then, draw attention to another aspect: is the competitor offering substantial discounts on certain products or services? This could be an indicator that it is leaning toward abandoning those certain products or services.
How are they positioned relative to the market?
To understand how your competitors position themselves relative to the market, you must be clear about what is meant by positioning: market positioning is the position that a brand or its particular product or service occupies in the minds of consumers.
As you have probably already noticed, some of the questions already mentioned above can be very helpful to you in this regard. Keep in mind, too, that there are 3 variables in particular that contribute to defining market positioning:
- the characteristics and performance of the product;
- price;
- communication strategy.
In addition to the concept of market positioning, it is also important that you know the meaning of market share, another relevant aspect in competitor analysis: market share is the portion of the market controlled by a brand and that is, in more practical terms, the percentage of total sales in an industry covered by a specific brand. You have to consider that the higher the market share, the greater the influence those who hold that market share have on product pricing and public perception.
What is their target audience?
Knowing market share lets you know which competitor has the greatest influence on your audience, but it also does not tell you what kind of audience they are. To know this information you need to consider two other aspects: who your competitors are targeting and to what extent their audiences overlap with your target audience.
Understanding audience demographics helps you more effectively connect with your customers and propose solutions that more accurately address their needs.
What promotional means do they use?
Analyzing the promoting channels used by your competitors allows you to find out how they are reaching their target audiences and can give you other very useful information to identify potentially better performing channels for your promotion strategy. But what is this information?
The use of each channel tells you a lot about your competitors:
- direct channel: probably the competitor stands out for strong Brand Awareness since users head directly to its site and, therefore, already know the brand (this means that, in all likelihood, it has done and continues to carry out offline marketing campaigns);
- referrals: the competitor probably makes extensive use of backlinks and/or banner ads on other sites (this indicates that it most likely targets Digital PR activities and perhaps publishes content on other platforms);
- research: the competitor relies heavily on SEO and optimizing its content (you could analyze its content and figure out which performs best);
- social: the competitor probably has a strong social media presence and a high user engagement rate (you should analyze its posts and understand which platforms it uses and how);
- paid: the competitor probably has a good advertising budget, particularly for paid search (the advice here is to find out what keywords it is targeting and analyze the texts and placement of its advertisements).
Competitor Analysis Tools
The time has come to move from theory to practice: to turn observations into information that is more concretely useful for your strategy, you can make use of the many valuable analysis tools the Web offers you today.
A fairly common distinction for classifying competitive analysis tools is as follows:
- competitive analysis tools for SEO;
- content-based competitive analysis tools;
- competitive analysis tools for social media;
- competitive analysis tools for e-mail, advertisements and industries;
- other useful tools.
Below is a (non-exhaustive) list of some of the best tools for analyzing competition in SEO:
- SEMRush, with which you can, for example, analyze competitor backlinks and monitor their ranking;
- Ahrefs, which allows you to check the main organic keywords and estimate the traffic generated by competitors for those specific keywords;
- MozBar, a browser extension that provides a guiding idea of a site’s authority in the eyes of Google.
Among the best tools for analyzing competition in relation to content, however, are:
- Buzzsumo, which allows you to discover top-performing content for topics relevant to your brand and specific competitors;
- Similarweb, which helps you analyze competitors’ content and understand where their traffic is coming from;
- Feedly, which gives you the ability to monitor your competitors’ content without the need to constantly check their blogs.
In the next few lines, however, you will find a selection of the best tools for performing competitive analysis by social media:
- Sprout Social, a tool that allows you to analyze competitor performance on social media from different perspectives;
- Phlanx, an engagement calculator for Instagram that provides you with information about an account’s level of follower activity (it can be useful for you, for example, to find out if someone might have used illicit means to acquire followers);
- Social Blade, a tool that estimates a brand’s number of followers based on likes on Twitter, Instagram, and YouTube (often used to gauge the popularity of celebrities, on and off the web, but provides valuable data for marketing purposes as well).
In e-mail, advertisements and industries, the following competitor analysis tools stand out:
- Mailcharts, a tool that allows you to compare your e-mail marketing campaigns with industry best practices;
- Owletter, a tool that collects and organizes competitor e-mails, highlighting any changes in message frequency and collecting trends to optimize your e-mail sending times;
- iSpionage, which analyzes competitors’ paid advertisements from different aspects;
- Owler, which allows you to manage data and content from startups relevant to your niche market.
Finally, other useful competitor analysis tools include Crunchbase, the go-to platform for those who need to find financial (but not limited to) business information on public and private companies.
Models and templates for analysis
Now that you have a list of startups or competing companies and have managed to gather a great deal of information about them, you need to analyze this body of data. You may not know it, but there are specific techniques for doing so.
The SWOT analysis
SWOT analysis is a particular strategic planning technique that aims to analyze the position of a company or its specific product or service within the market. It takes into consideration 4 very specific factors:
- strengths (internal environment);
- weaknesses (internal environment);
- opportunities (external environment);
- threats (external environment).
SWOT analysis is also called a SWOT matrix because, graphically, it appears as a 2×2 grid with strengths in the upper left, weaknesses in the upper right, opportunities in the lower left, and threats in the lower right. To learn how to construct the matrix in more detail, we refer you to our specific in-depth look at SWOT analysis, which also includes practical examples.
Porter’s 5 Forces
Porter’s 5 forces model, also known as expanded competition analysis, is a tool to help you better understand the structure of the industry in which you operate and its profitability in the medium to long term by studying the importance and intensity of 5 forces acting within an economic environment:
- direct competitors;
- providers;
- customers;
- the substitute products;
- new entrants.
In order to understand how this model works, it is necessary to learn more about the individual forces: it may be very helpful to you in this regard to read our focus devoted precisely to Porter’s model.
The benchmark table
The benchmark table is an empirical evaluation strategy that allows you to evaluate a measure against a preliminarily defined standard. Through it you can monitor the results obtained in a specific field, comparing them with certain benchmarks.
The Cartesian graph
To analyze the positioning of competitors in the market you can use a Cartesian graph. Several variables can be represented within it, such as:
- low price vs high price;
- low quality vs. high quality;
- niche product vs. mass consumption;
- traditional vs. contemporary.
By placing competitors within the Cartesian chart according to the selected variables, you can get a clear overview of the differences between competitors.
The Value Proposition Canvas
The Value Proposition Canvas is the tool that helps you find the right value propositions for your customers by identifying their real needs and relating them to the value your startup can offer. This particular tool, in more practical terms, enables you to respond more effectively to your customers’ problems, difficulties and needs.
Not everyone knows, however, that the Value Proposition Canvas can be used not only for one’s own business but also for that of competitors.
In this regard, remember that what you have to offer more than your competitors must be unique, desirable and credible. To differentiate yourself from competitors you can consider three aspects:
- the Points of Parity, that is, the attributes or benefits that are not exclusive to the brand because they are in common with competitors ((among them, you absolutely must have those that customers consider indispensable);
- the Points of Difference, which are the unique and exclusive attributes of the brand that the target customer values positively;
- the Points of Irrelevance, i.e., the attributes that identify features that customers are not interested in.
How to use the information gathered in your strategy.
If you have done your competitor analysis correctly, using the right tools and models, you will have a wealth of valuable information at your disposal; what remains to be done is to integrate this data into your strategy.
The basic questions you can now finally find answers to are as follows:
- what are your priorities?
- what are your main strengths and weaknesses?
- what does your audience want?
- which strategy of your competitors works best? Are you using it?
Remember that, in addition to understanding what your customers are looking for and how you can improve the products or services you offer, a well-executed competitor analysis also allows you to identify customer needs and desires that are still unmet or, conversely, can highlight what is not working or is too costly compared to the result that is possible to achieve. One final pointer: competitor analysis should be performed cyclically because, nowadays, the key players in the market are constantly changing and evolving.
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