As the challenges of global markets keep growing, it becomes fundamental for a company to gather detailed information about the competitors active on its market. The findings of such an analysis are an important basis for business decisions. This article sets out what you need to know about competitive analysis and looks at the strategies and methods behind it.
Professional competitive analysis: how to improve your competitiveness
Rising costs, and the competitive pressure created by digitalisation, online retail and globalisation, are making the fight for market share harder still.
“Against that background, it matters to gather information about the strategies, market position, product quality and objectives of your competitors.”
That information supports strategic corporate planning as well as marketing campaigns and sales activities, and backs them with facts.
What is a competitive analysis?
Within market research, competitive analysis belongs to strategic market analysis. It lists and assesses the methods, instruments and strategies that competitors use to operate on the market and to pursue their business objectives.
This yields valuable insight not only for your own strategic planning, but also for product management and for marketing and sales work. In practice, a distinction is drawn between strategic and operational competitive analysis.
How it differs from competitor analysis and market analysis
Competitive analysis and competitor analysis are both classic components of market analysis, yet the literature sometimes uses competitive analysis as an umbrella term covering the fields of market analysis and competitor analysis as well.
Because the individual areas of analysis are closely interwoven, the terms “competitive analysis”, “market analysis” and “competitor analysis” are also used as equals, and the ground they cover overlaps.
Competitor analysis defined
Competitor analysis means gathering comprehensive information about competitors, preparing it and — ideally with dedicated analysis tools — evaluating it against strategic criteria. The results serve as a basis for deciding on your own corporate strategy and for potential investors, and as a basis for internal activity in day-to-day operations.
“A high-quality competitor analysis does more than report the number, market shares and products of your competitors: it also draws up a profile of their strengths and weaknesses.”
A competitor analysis should cover the following points:
- Number and characterisation of actual and potential competitors
- Market position?
- Who is the market leader?
- Quality of the competing products?
- Unique selling point?
- Sales channels?
- Price structure?
- Discount schemes?
- Payment and delivery terms?
- Services offered?
- Image of the competing companies and their brands?
- Audiences the competitors address?
- Type and scope of their advertising?
Market analysis defined
In market research, market analysis describes the systematic and objective analysis of a defined market at a given point in time, based on concrete figures and data. It gives a company facts about market volume and market potential, about market development, market shares and customer structure. It also reports on the wider conditions, such as the economic climate, legal requirements or prevailing trends.
A market analysis also shows whether the target market is capable of delivering sufficient sales volume, and which measures are advisable to improve the prospects of selling there.
“A market analysis always presupposes a precise definition and description of the audience you are aiming at.”
Market analysis covers the following aspects:
- Market potential of products or services
- Market volume
- Development of the market
- Market segmentation by region or country, and by customer or product group
- Distribution channels and logistics
- Competitor analysis
- Product life cycle analysis
Tasks and objectives of a competitive analysis
A sound analysis of the competitive situation should be carried out for the first time when a company is founded, and repeated once a year after that. Its main task is to recognise the strategies and objectives of competitors and to anticipate how they will behave, for example when the market shifts. It also serves to sharpen your own strategic direction and market performance.
Further uses lie in clarifying which competitors are active on the market and what strengths and weaknesses they have, and in establishing how intense competition on that market is overall.
“Once the analysis is done, your own positioning should be settled and your chances on the market realistically assessable.”
A professional analysis of the competition answers questions such as these:
- What bargaining power do competitors, and their customers and suppliers, hold?
- What room for manoeuvre is left by the strategies competitors are currently pursuing?
- Are there niches in this market, and if so, which?
- Do innovative products or services stand a chance here?
- Which marketing strategies look promising?
Methods of competitive analysis
A basic distinction is drawn between operational and strategic competitive analysis.
Operational competitive analysis
The common methods here are:
- Product comparisons — evaluations at a high level of detail, the assessment of comments made about the products, and benchmarking approaches that take both qualitative and quantitative criteria into account.
- Product advantages — unique selling points and other strengths of a product are used as sales arguments against competing products.
- Positioning papers — these set out a position on competitor activity, such as the launch of a new product, summarise the relevant key points, report on events, describe the consequences for the market and for your own company, name the decisions to be taken and add further recommendations, for instance working out an adequate counter-position.
- Activity against competitors — well-founded arguments are used to underline your own strengths, refute criticism and play down internal weak spots as well as the advantages of the competition.
Strategic competitive analysis
The methods used are:
- Industry analysis — entire industries or economic sectors are examined and the market leaders in each are presented as a kind of portfolio in matrix form. The matrix consists of categories to which any number of individual criteria can be assigned. Assessing and weighting those criteria objectively gives a summed value per category, which can then be visualised as a chart.
- Company profiling — basic company data and the history of competing companies are listed as profiles, with their individual strengths and weaknesses accentuated.
- Competitive comparison — this method rests on a set of defined factors such as corporate strategy, market share or product quality, and supports reliable conclusions about where competitors perform better and where they have ground to make up. It comes in three forms: comparisons of criteria relevant to strategy and success, such as product features, market position or price structure; performance comparisons focused on key financial figures such as revenue, liquidity and operating result; and market position comparisons, which analyse the ranking of competitors by market share within a defined market environment.
A closer look: SWOT analysis as a tool for strength and weakness profiles
The SWOT analysis (SWOT stands for strengths, weaknesses, opportunities and threats) is a powerful instrument in market research. It helps you align your own strategies to the strengths and weaknesses you actually have, and gather detailed information about competitors.
A classic depiction of the four-field matrix can be found at Project Smart.
The SWOT analysis works with internal and external factors:
- Internal factors: strengths and weaknesses
- External factors: opportunities and threats, that is, risks
The factors are then analysed and evaluated in terms of the individual opportunities and risks they carry.
A properly conducted SWOT analysis answers the following questions:
- Which of the company’s individual strengths serve to exploit which opportunities?
- Which specific advantages does the company draw on to minimise which risks?
- Which individual weaknesses does the company reduce in order to take which opportunities?
- Which specific weak spots is the company working on in order to head off which risks?
- What opportunity and risk profile does the target market present in general?
Conclusion
At a time of growing competition between markets, rising cost pressure and mounting challenges brought by globalisation and digitalisation, an analysis of the competition carried out professionally and regularly is an essential element of any business strategy.
It puts a company in a position to respond appropriately to changes in the market and to shifts in competitor behaviour. Split into an operational and a strategic part, competitive analysis creates clarity about the strategies, objectives, market position and product quality of the competition, and delivers a valuable basis for decisions about your own strategic direction and about targeted activity in marketing and sales.
“Carried out annually, a competitive analysis helps to keep your own company competitive.”
