Small businesses live and die by what they bring to their customers. Any competitive advantage they can gain over similar companies can make the difference between a successful year or bankruptcy. What can small-business owners do to maximize their business strategy and gain an edge over others in the same small markets?
The answer is competitive analysis. Sometimes called competitive intelligence, it's a method of systematically learning about the competition. You can design your business plan by gathering competitive intelligence, analyzing the data, and using it to understand how your competition succeeds.
Ethical and effective business intelligence starts with knowing the competitive intelligence tools. So let's get started.
Getting Started: Why Do This?
Before you begin a competitive analysis, you must know what you're analyzing. What information do you want to gather about your competition? For instance, if you're considering a new product rollout, you need different information than if you want to open a new store in another location. The only thing worse than no information is the wrong information.
Identify your direct and indirect competitors. In marketing, a direct competitor is a business that does exactly what you do. An indirect competitor is similar but not quite the same. Pay attention to both because a Google search can lead customers to all of them.
For instance, suppose your business makes custom leather handbags. Your direct competitors are other companies that make custom leather handbags. Your indirect competitors include those who make custom denim handbags and those who make custom leather backpacks.
Identify the competitors' products. Analyze their product lines. Find out their market share and how it fits with industry trends. What are their pricing strategies? How are their products similar to or different from yours?
Learn what you can about their sales techniques. Although accosting their salespeople is an unethical strategy, social media provides a window into their customers' opinions. Take a look at their reviews and their online marketing tactics. If they're an LLC or corporation, their annual report is public record. Are their sales declining or improving?
Perform a SWOT analysis with each of your nearest direct competitors. By looking at strengths, weaknesses, opportunities, and threats, a SWOT analysis lets you use information you've gathered on all your competition to assess your own strengths and vulnerabilities in the competitive landscape. From there, you can revise your marketing plan accordingly.
- Strengths: In what areas are you strongest? Where are your competitors strongest? In what areas do you excel, such as customer satisfaction, product quality, or increased sales?
- Weaknesses: What prevents you from achieving your best performance? Poor brand recognition, high sales team turnover, and supply-chain difficulties are examples of weaknesses. Note that weaknesses can affect you and your competitors equally.
- Opportunities: These are external factors that could benefit your operation. A new factory opening and bringing more potential customers into town is an opportunity.
- Threats: Consider external factors that could hamper your operation. The threats could be as simple as a highway closure or as complex as an earthquake overseas disrupting a supply chain.
You can find many free SWOT analysis templates online for small-business owners. Use these to assemble your data once you have it. The best templates explain how to build a marketing strategy out of your research.
Gathering Competitive Information
Now that you know why you need competitor intelligence, you must know how to get it. First of all, market intelligence is not corporate espionage. You should not be lurking around your competitors' stores interviewing their customers in dark alleys. Nor should you engage in hacking or other unlawful methods of evaluating your competitors' sales and marketing.
You can and should collect as much information from legitimate sources as possible.
- Internet: Visit your competitors' websites. Examine how they present themselves. Use search engines in your research. Who appears first with your SEO keywords — you or your nearest competition? Look for mentions of competitors' names in other places, such as news reports. All this gives you an idea of their marketing tactics.
- Advertising: How your competition advertises tells you a lot about their target audience, demographics, and overall strategy. For instance, your nearest competition in the leather handbag market may run ads showing high school and college students. Since they're targeting the junior market, you may want to slant your messaging toward professionals.
- In person: Visit your competitors' stores (if any). As long as you don't steal their business ideas, you can walk through the shops, watch how their sales reps interact with customers, and see what the store looks like. Ask your own customers if they have ever gone to your competitors and their opinion. Keep your comments neutral and hypothetical.
Competitive Research Tools
If competitive intelligence research seems overwhelming, relax. Competitor analysis software exists to assist you and your marketing team with gathering all this information and assembling it into a readable format. Many of these are downloadable apps that let you plug in your competitor list and track the internet while you do your tasks. Then, the apps merge the data into your spreadsheets or customer relationship management (CRM) technology to help with business decisions. For instance:
- Social listening tools can comb social media sites “listening" for mentions of a competitor. These help you check influencer trends and SEO strategies.
- Market intelligence tools watch market trends and show changes in market share in a given segment.
- Conversational intelligence software can analyze digital communications between sales reps and prospective customers using artificial intelligence (AI). This helps pull sales information out of the calls and provides you and your sales staff additional insight after each sale.
Get Legal Help With Your Competitive Analysis
Entrepreneurs should get an idea of their competitors before starting a new venture. You want to offer a new product or fill a new niche, not compete with an established business. If you have legal concerns about your new offering, consider calling a business and commercial law attorney licensed in your state.
See FindLaw's Marketing and Advertising Laws section for additional resources.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.