How to conduct a competitor analysis that will put you on top

In any walk of life, you need competition to push you. In the tennis world, would Roger Federer have been so consistent if Rafael Nadal and Novak Djokovic hadn’t been around - and vice versa? In Premier League football, would Manchester City have been so relentless over the past four years if Liverpool hadn’t been pushing them so intensely?

It’s the same with business. Competition keeps companies on their toes and forces them to make strides forward. Some companies may be happy plodding along, doing the same thing day in, day out. But do you want them as your competitors? No, because good competition drives change and innovation. It’s healthy.

In order to compete properly, though, you need to know the characteristics of your rivals. This is why conducting a competitor analysis is such an important process.

The frequency of such an exercise will differ according to the size of your company. A small to mid-sized firm may do one every two to three years, while those that turnover £100m a year may do one every six months. But the principle is the same: it’s an evaluation of what your competitors are doing well and using that insight to make your own company better.

Ideally, a competitor analysis would be carried out proactively as part of good business practice. But it may also be reactive, for example, if a company is struggling on the balance sheet, or if it is haemorrhaging talent. Either way, the point of a competitor analysis is to find out what other firms are doing differently to work out the areas where your company can capitalise.

So, what are the key aspects of competitor analysis? First and foremost, you find out who your competitors are. This sounds obvious, but some businesses that look like a competitor may actually not be. Take Airbnb and Booking.com, for example. They have the same purpose – primarily providing accommodation for holidaymakers - but have completely different business models, one providing a platform for the vendor and the other acting as an intermediary between customers and vendors. Essentially, If you can’t identify those you are directly competing with, you are going to be in a very difficult position.

Once you identify your competitors, you need to find answers to basic questions such as how long have they been around? What is their comparative size? What are their historical patterns and trends financially? How are they standing today against years gone by? Finding out who is on the same road map will then enable you to dig deeper.

The next thing to consider is the company metrics. How are they funded and what is their revenue? What do they do the same and what do they do differently? Who are their customers? If they are trading with, say, Tesco and your company isn’t, what were the ingredients that got them there? Similarly, you may end up identifying a potential customer they are not working with, in turn giving you an opportunity.

The third is focusing on the product or service provided by your competitors: looking at its features; what is different about it; the pricing strategy; tech or innovation being used; and how they are getting around challenges and obstacles. Answer the “three Ws” - where is the product needed, what is the customer base and who else is providing this product - and it will create a framework to broaden your own offering, or even identify a unique selling point.

The fourth is how the business markets itself. This is of growing importance in a world where the 20th century ideal of simply delivering profits is increasingly not enough to satisfy shareholders, workers and customers alike. While profitability and return on investment is still the bottom line, more and more businesses are also promoting their wider societal “purpose” when presenting themselves to the public. If that’s the case, what is their purpose and is there an area where your company could differentiate itself? Meanwhile, how do they market themselves? Increasing numbers are doing this through social media. If that’s the case, what’s their social media reach? This research all comes down to one thing: how is this company viewed by the public?

While a competitor analysis is complicated and time-consuming, these are four fundamentals that any business needs to review as part of it. Anyone who conducts this better than their competitors is doing their homework, and in any walk of life doing your homework gives you a head start. With a head start, you are more likely to get opportunities that no one else has, giving you a springboard and competitive advantage. And with a competitive advantage, you get a significant market share, augmentation of cash flow and the ability to attract the best people. In essence, it ultimately forms a platform for growth.

Word to the wise, competition is essential for business - but knowing your competitors inside out is just as necessary and can be a defining value.