How To Research And Analyse Competitors

How To Research And Analyse Competitors

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competitor-analysis

Traditional competitor intelligence (CI) theory suggests that an investigation into a competitor business will analyse four aspects of its behaviour:

  • Goals
  • Management assumptions
  • Strategies and tactics
  • Capabilities

My experience is that to make this exercise more meaningful and valuable for small to medium size businesses, you need to be very specific about the kind of information you are looking for. Here is my checklist of the top ten things you need to find out about your competitors. The items on this list are more clearly defined and more understandable than in traditional CI theory.

These items can therefore empower you, the business owner, to know what to look for when you embark on this exercise.

Related: SWOT Analysis Template

This list is fairly extensive and most small to medium sized businesses do not have the resources to vigilantly track each of these areas explicitly for up to five competitors. You need to ask yourself which of these items is most central to competitive advantage in your industry. Select the three to five that are core, and proactively monitor those areas.

You can be more reactive when it comes to the other items – assessing them as and when you become aware of new information.

 

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1Customer Perceptions

What do customers think of competitors relative to what they think of you?

Customers are the most important source of marketing for any business – there is nothing more powerful than word of mouth. If customers are raving about what your competitors are doing, there is good reason for you to find out why. On a recent business trip to Cape Town I stayed at a particular B&B for the first time. Over breakfast the owner and I got chatting. He asked:

  1. Did I travel to Cape Town often?
  2. Where did I usually stay?
  3. Why had I switched on this trip?
  4. What did I think of the other places I had stayed at?

It was not vindictive or intrusive, but it was a very clever gathering of competitive intelligence. I compliment him for it.

2Product Launches

What new products or services have your competitors launched or are planning to launch into the marketplace? How do these compare with your offering?

New products and services are potential sources of competitive advantage for competitor firms. To respond to new competitive advantages you need to first be aware of them and then assess how great a threat they are. To assess the danger, observe customer responses to the new product or service, take cognisance of what the media is saying and potentially try the product or service yourself. Some of the first people to buy an iPad were Amazon employees who were responsible for the Kindle.

3New Distribution Channels

distribution-channels

What new distribution channels are your competitors using to get their product or service to customers? Will these new channels open new markets? Or will they steal your customers?

Over the years, finding new distribution channels has often been a way of opening up new markets. Amazon transformed the book industry by using the Web as a distribution channel; Tupperware was successful because it found an untapped distribution channel through parties in people’s homes. Only by being aware of how competitors are utilising new distribution channels can you respond adequately.

Related: Competitor Analysis Example

4Recent Investments

What property, plant or equipment have your competitors acquired and how are they planning to use it? Will this provide them with new competitive advantages?

The acquisition of large-scale assets is often a sign of things to come. By monitoring what competitors are buying, you can pick up signals that they are expanding capacity, changing processes or potentially going to launch a new product or service.

5Promotional Efforts

How are your competitors promoting their offering? Has it changed? How are potential customers responding?

Promotional efforts are one of the easiest competitor elements to observe because they are usually in the public eye. When I worked at a large accounting firm one of the other big accounting companies started promoting their brand on TV during rugby matches. This was unheard of in the industry and created a stir in the organisation.

The marketing people responded very sensibly. Instead of looking at what sport they could sponsor, they did an extensive survey to assess the impact of the advertising; they discovered that rugby sponsorship had almost no impact on their clients’ decisions about which accountant or auditor they would hire.

It did, however, have an impact on the decisions of accounting students about which firm they would join. As a consequence, they were able to put processes in place to counter this threat. By observing the change, interrogating its effect and responding appropriately they made some very wise and effective tactical moves.

6Price Adjustments

How have your competitors adjusted their prices? How are customers responding?

Price is both an important and a tricky component of the competitive equation. It is therefore vital to always be aware when your key competitors change their price. When you observe a price change consider whether it is sustainable, ask what signal this is sending to customers and carefully interrogate what effect price has in your sector of the market.

In a commoditised market lower prices may offer some sort of competitive advantage, but most small and medium sized businesses are not competing on price; instead, they compete on customer experience and/or product differentiation. Therefore, by entering into a price war with competitors you may be going down a slippery slope, sucking the entire margin out of your business without ever really setting yourself apart.

7Acquisitions and Partnerships

Have your competitors acquired a stake in another company or entered into a partnership with another enterprise? What might come of this acquisition or partnership?

When Google acquired YouTube, it was a signal that the organisation was getting serious about online video. When a publishing company partners with a software firm, this means it’s probably getting serious about online delivery and ebooks.

Acquisitions and partnerships are a quick way to acquire skills and technologies for major strategic moves. Keep track of where and when they are happening. Many acquisitions are reported in the local business media. You may also hear about them via the industry grapevine, which can serve as a key source of information on competitor acquisitions and partnerships.

8Financial Performance

financial-performance

Are your competitors experiencing improving or declining revenue and profitability?

In the case of private companies, specific information on financial performance can be difficult to obtain. Private firms have no requirement to report their results to the public. Yet, general information on trends in revenue and profitability is often more readily available. A CEO will allude to the fact that a firm is doing well in a local media report; if a firm is laying off workers, that’s a sign that cash flow and profitability are under strain. Although you often can’t obtain specific revenue and profitability numbers, you can infer enough from public sources of data to keep adequate tabs on your competition.

9People Movements

Have your competitors recently hired or lost talented people? What roles do these people perform? What is this likely to mean for their business?

In a small and medium sized business, one person can make a huge difference. An advertising agency which hires a respected new creative director can acquire new competitive advantage in winning clients. When a law firm loses its litigation specialist, this may signal that the firm will no longer effectively compete for litigation work.

People equal advantage and, therefore, being aware of people movements is critical. These movements are also quite transparent; people can’t hide where they work and the industry grapevine is often effective at spreading the news quickly. As a vigilant business owner you just need to be conscious of when this news is of relevance to you and consider what it means for your business.

10Process Improvements

How have your competitors changed their key processes? What effect is this having on their customers’ experience and their profitability?

Process improvements can change a customer’s experience. They can result in on-time deliveries, answered telephone calls, shorter queues and more effective products. Many times process improvements will be preceded by new investments and succeeded by changing customer perceptions, but understanding the link between the investment and the change in perception can help you assess why a competitor is gaining the upper hand and how you should respond.

Related: The Cheat’s Guide to SWOT Analysis Examples

Intelligence Gathering

In the past 20 years, information has become more ubiquitous. The process of finding data is easier but also potentially more confusing. Try these effective and inexpensive ways of gathering competitive intelligence:

News Sources

With Google News (news.google.com), news stories on competitors have become very easy to track. You can simply search past news stories and sign up for alerts about news stories related to your competitors as they break. Another secret about following competitors is that some of the best news sources are often local newspapers that cover local companies – they often get rich data and report it in great detail because of the local interest element.

Websites

Nowadays almost every company has an online presence. Just by regularly checking competitors’ websites, you can track developments in the organisation. Often there are other companies reporting on your competitors – for example, many customer experiences in South Africa, good and bad, are reported on customer service site Hellopeter.com.

Finally, just by doing a Google or Bing search on your competitors, you can see which other sites refer to your competitors, reveal key alliances, networks, suppliers and customers.

Mystery Shopping

If you operate in a consumer-orientated industry, there is no harm in becoming a customer of your competitor to figure out what they are doing and how you can differentiate yourself. Shop in their store, attend their public seminars, call them for a quote or eat at their restaurant.

When I work with business owners I am often surprised by how few of them do this. It is such an easy way of getting to grips with what competitors do well and what they do badly, yet very few people take advantage of it.

Asking Customers

Earlier, I referred to a casual conversation I had with a B&B owner in Cape Town in which he subtly assessed why I had not stayed with him in the past, what I thought of the other places I had stayed at, and what he did well or badly relative to his competitors. Easy conversations with new and old customers can tell you so much about how you are perceived compared to competitors.

Checking with employees

Frontline employees often see, hear and experience things about competitors that people back in the office would never know. Are you giving your salespeople, customer service reps and account managers the chance to share, contrast and consolidate their insights about competitors?

A simple monthly meeting in which employees are encouraged to provide insights about competitors from their frontline interactions can be a gold mine of competitive intelligence.

How Do You Use This Information When You Have It?

Information about competitors should not drive your strategy. It should merely be one of the data points that you consider when setting your strategic goals. It can also affect your day-to-day tactics in implementing those goals. The best way to explain this is by example: let’s assume you have some IT skills and you want to set up an IT business.

You assess the market and see that there is no one providing quality IT services to mid-sized manufacturing businesses in a particular area. Your competitive intelligence helps you discover that there are many one-man operations serving small companies on a relationship basis, as well as a few large players looking for annual contracts that run into the millions.

The big players sometimes sell to the medium sized firms, but they offer them limited personalised attention and ongoing support.

By gathering this competitive intelligence, you discover a gap in the market for a company with a team of customer-orientated technical professionals offering personalised IT services to medium sized manufacturing businesses. You will distinguish your business on the level of service and the scope of projects that you take on. Over time, a few of the one-man operations join together to replicate what you have done. You pick this up by scanning the news, talking to customers, and gathering data from your frontline IT professionals.

This influences your strategy & tactics:

  • On a tactical level, you encourage your account managers to spend more time with customers and incentivise them to renew their contracts with existing clients.
  • On a strategic level, you decide to embark on a
  • Project to create new mini software programmes for your clients.

Because you have been close to them over the past few years you have understood their software needs and you can create programmes to fill the gaps where there are no off-the-shelf solutions to deliver what they require. By creating these programmes you can charge them more for services and retain them as clients. The recently formed new firm of consolidated one-man operations has no similar software to fill gaps for clients.

Your competitive intelligence told you that your current point of differentiation was being challenged, so you decided first to reinforce what you currently have by renewing contracts, and then to build a new point of differentiation. This is how successful companies compete – using competitive intelligence to inform the process.

You Need to Know This – Very Important Advice: A SWOT analysis is important, but it’s not enough. You should also run a Market Analysis:

Greg Fisher
Greg Fisher, PhD, is an Assistant Professor in the Management & Entrepreneurship Department at the Kelley School of Business, Indiana University. He teaches courses on Strategy, Entrepreneurship, and Turnaround Management. He has a PhD in Strategy and Entrepreneurship from the Foster School of Business at the University of Washington in Seattle and an MBA from the Gordon Institute of Business Science (GIBS). He is also a visiting lecturer at GIBS.