Each section in a business plan has a specific purpose. Together, they can help an entrepreneur run their company.
While some sections focus on market opportunity, other aspects of your business plan must address potential challenges. One of these obstacles is competition and your competitors’ strengths and weaknesses. This information influences how you build your new product or encourages you to differentiate yourself from others.
Here are seven key steps that will help you create a comprehensive competitive analysis for your business plan.
1. Identify and list the competition
For your first step, research your competitors to better understand them. Your competition is any business or individual with a similar product or service. Your direct competitors probably serve the same target market you do. Stick to two or three competitors for the competitive analysis.
You can choose to list companies that are much larger or smaller than yours. But if you have many competitors, mainly focus on ones that are similar in size to you. These competitors might share some attributes with your company, like market share, business model, operational processes, or product/service.
2. Create a competitive overview
For each competitor, create an overview that describes the business. This overview should highlight attributes and features that make each organization a competitor. Use your own knowledge along with market research. Be descriptive yet brief. Consider including the business owner and their background too, if relevant or noteworthy.
3. Describe the competition’s target audience
You can see the type of customers a competitor has by looking at their marketing messages and content. Also think about the different segments your competition pursues as well as how they personalize their messaging to each segment.
Read all comments, feedback, reviews, and discussions that this audience has about each competitor. From what they say, you’ll be able to determine if your competition does or doesn’t satisfy target customers’ needs and expectations. Additionally, research online audience profiles to develop buyer personas. These can include location, age, profession, potential income, and any other demographic information that shapes how they buy.
4. Include the competition’s pricing
This next step involves doing a little competitive research into the pricing strategy of other companies. Include all the various pricing levels or plans as well as any shipping costs.
Part of the pricing analysis should include any type of subscription model, installment plans, or packages the competition uses. Also, track when and how they reduce pricing through promotions or sales.
5. Outline their marketing strategy
Uncover how each competitor uses marketing both online and offline to see how you can further differentiate yourself:
- What does their print marketing, such as billboards or brochures, look like?
- How often do they post on social media? What do they share? How many followers and shares do they have? Make sure to look at the type of comments potential customers leave and how the competitor responds to them.
- What do your competitors’ websites look like, and how often do they refresh their design? When you do a Google search, note how high the website ranks in search engine results. Specifically look for how high competitors rank when you type in various search terms related to what they sell.
- Do your competitors have a blog with regularly updated content? If so, they most likely have a content marketing plan in place.
- Check to see what competitors promote through online and print advertising. Assess how they use calls to action (CTAs) to drive leads.
- Research what kinds of events they attend, participate in, or sponsor.
- Do they have strategic partnerships to cross-promote products or services?
6. Define their competitive advantage
The next step helps determine whether you’ll be able to rise above your competition. As part of the competitive analysis, list factors that make your competitors unique or give them some kind of advantage over you. Your eventual goal is to illustrate why you think your product or service can compete strongly with theirs when you launch.
Competitive advantage factors include product or service quality, pricing, target market, location, and company history. Does the competitor’s product address customer pain points? Do they sell a broader range of products? Do they sell to a specific market that is otherwise underserved? Does your competition have a unique story or a recognizable founder/leader? All of these things could help define their competitive advantage — or yours.
7. Summarize each competitor’s strengths and weaknesses
As a final final step, create a summary of all your research through a comparison of each competitor’s strengths (your challenges) and weaknesses (your opportunities). This is similar to a SWOT analysis, a popular strategic planning technique used to assess competitors.
The information in this last section also helps determine who you can outperform. It may be of particular interest to venture capital or angel investors looking to fund your company.
Know your competitors
Understanding the competition can help shape your small business strategy. A complete competitive analysis can serve as a kind of battle plan. It will help ensure your business gets noticed, meets the challenge of new competitors, and sustains itself in a perpetually tough business environment.