A Fact of Life
Competition is a fact of life, especially in the business world. Having a solid understanding of the competitive landscape is critical for the success of any business. This post will help you understand how to evaluate your competitors and the value of doing so.
Why Evaluate Your Competition?
In order for a major league baseball team to be successful, it must win. The more a team wins, the better, because people love to support winning teams. The more fans, the more money. The more money a team has, the more the team can invest in top players to keep winning, thus furthering the financial success of the organization.
The success of a winning team is contingent upon more than the performance of talented athletes. It is also determined by a solid understanding of the team’s rivals. Team owners, managers and coaches look at everything from opposing player’s salaries to their batting averages when sizing up the competition. These are indicators of a team’s strengths and weaknesses, and it is this information that allows team leaders to develop strategies to win.
The same is true regarding the success of any business. To be a leader in your marketplace, you have to understand key players in order to develop strategies that will allow you to stand out and become the preferred choice for your product or service.
How to Identify Your Competition
There are many sources that you can use to identify your competition. You can start to evaluate your local competition by simply looking in your phone book. If you access a phonebook on the internet, such as Yellowpages.com, you will have access to who is selling your product or service within approximately a 50-mile radius.
Today’s global market demands that you take your search a little further in most cases. If you are thinking of selling sports memorabilia online, you are by no means alone in the marketplace. For this reason, the internet is among the richest sources of information for determining who your competitors are on a larger scale. Search Google using keywords to identify competitors.
Trade associations can also be a great source for identifying your company’s competitors. For example, if you were going to start an e-commerce site dedicated to selling aftermarket car parts, you could visit the website for the Automotive Aftermarket Industry Association (AAIA), (http://www.aftermarket.org/). This site happens to include a list of automotive aftermarket product vendors in its member directory. Search Google using keywords to identify your industry’s trade associations.
Most industries also have trade shows associated with them. Attending these shows is a great way to get-to-know your competition. You can see their products firsthand and gather intelligence from company representatives.
TV, radio, newspapers and magazines, including consumer and trade publications, are also good sources for identifying marketplace rivals. You may see your competitors advertising in these vehicles or find articles featuring their products or services.
How Much Competition Exists?
In order to have a complete understanding of your market rivals, you need to assess exactly how much competition exists on a local, state, regional and national level. This will allow you to develop strategies to compete within these markets. It is important to determine from this information who your direct and indirect competitors are.
Direct competitors are those businesses that offer identical or similar products or services to your business. These companies are vying for your customer’s attention, and represent the greatest threat to the success of your business.
Indirect competitors are businesses that are offering products and services that are similar in nature. These competitors are targeting your market, but delivering a different product. For example, if you were selling cars through your e-commerce site, an indirect competitor would be a business that sells alternative transportation vehicles such as motorcycles or scooters.
It is also important to evaluate how much future competition you may have. Let’s say you are looking to sell sports memorabilia through your e-commerce site and there is a store five miles from your location in a shopping plaza. You identify that this store doesn’t have an e-commerce presence; however, that doesn’t mean that they never will. Consider this store a potential rival.
Remember that identifying all the existing and future sources of competition is nearly impossible in many cases. It is most important that you determine your existing major competitors. Start by making a list of 8 – 10 direct competitors and 3 – 5 indirect and future competitors. Completely analyze who you perceive to be the strongest players in these groups.
How to Analyze Your Competition
When it comes to your competitors, the more you know the better. You need to know their strengths and weaknesses. In turn, you can then determine how you can capitalize on their weaknesses and make your business more successful. Here are some points you want to understand about your competitors:
- Location. Where are your competitors located in proximity to your business?
- Shopping portals. By what means are your competitors selling their products? Catalogs? EBay or Amazon? Brick and mortar operations?
- Sales margin. At what price are your rivals selling your product or service, and how much profit is associated with that sale?
- Number of employees. How much manpower is necessary for the success of your competitor’s business?
- Sales volume. How many products are your market rivals offering and how much are they actually selling? The more they are selling, the more buying power that business has, which means they are more of a threat to the success of your business.
- Customer service. How are competitor businesses serving their customers? For example, what are their policies regarding service and returns? Do they have a toll free number to handle customer service calls or just email?
- Marketing efforts. How is the competition spreading the word about their business? For example, look at how and where they are advertising and the messaging involved with those efforts.
- Marketing messages. What are these companies saying in their sales literature or advertising about their product or service? What is the company’s apparent mission? What image are they trying to create? To be the less expensive choice? The higher quality choice? etc.
- Market image. What do consumers think about your competitor’s business? A rival business may have the initial appearance of being a strong competitor, but if people aren’t saying good things about them, that could leave that business dead in the water.
Here’s an example of how you might apply this knowledge: Let’s say you decide to sell sports memorabilia at your e-commerce site. You identify that there is a brick and mortar operation selling the same products 5 miles from your location, and this operation also has an e-commerce presence. You ask around and discover that your friend recently made a purchase from their online store and was dissatisfied. Not only did his order show up two weeks late, but also the wrong merchandise was sent. With this information, you can learn from your competitor’s mistakes and develop procedures/policies that will allow you to serve your customers more effectively. Further, you can work to position yourself as the better choice for ensuring a product is delivered accurately and on time, every time.
Don’t forget to create files for each of the competitors where you store the information you accumulate. Continue to add to these files as you watch your market rivals. Review the information periodically for ideas.
Are Your Competitors Thriving?
Once you identify your competition and analyze how they do business, it’s also important to determine if their businesses are in a good financial position. A competitor may appear to be strong on the surface, but if their business is in financial ruin, they won’t be in the marketplace for long.
If your competitor is publicly traded, it’s relatively easy to find out how they are doing financially. All public companies are required to disclose their earnings by the Securities and Exchange Commission. Where can you find this information? If you search by ticker on Yahoo! Finance or MSN Money, you will find earnings statements that will tell you if a company is meeting earnings per share expectations. Many of these companies also house investor relations content on their websites, including earnings statements.
Many public companies distribute their earnings statements using wire services, because this is the easiest way for them to meet disclosure. The major wire services feed their content directly into sites like Yahoo! Finance, or you can visit the wire service’s website to search for the information directly. Some of these sites include Prnewswire.com, Businesswire.com and Marketwire.com.
If you can’t find a publicly traded company’s earnings statement online, this information is also included in its annual report. You can simply request a copy of this report from the company.
The water becomes a little muddier when you are trying to assess the financial position of a competitor who is not publicly traded. That said, you will have to get a little more creative. Here are a few things to look at:
- How much traffic to your competitor’s site? Alexa.com can help you determine how much traffic your competitors are getting. The more traffic, the more popular the site.
- Trade publications. These journals will often highlight the successes and failures of businesses within their industry as a tool to educate readers. Many have article archives or back-issues available on their website.
- Industry/trade associations. These organizations work for the common interest of those in the industry. A part of this effort involves knowing firsthand who is winning and losing within the industry.
- Customer reviews. What are customers saying about the business? If you find nothing but complaints from dissatisfied customers, that’s a good indication the business is in trouble. Many online auction and shopping sites have customer reviews of sellers such as Ebay or Amazon. You can also check Resellerratings.com and find thousands of reviews of online stores.
- Dun & Bradstreet (D&B). This company is among the world’s leading sources of business information. D&B’s database contains more than 100 million business records. Visit Bnb.com.
- Better Business Bureau. This organization is the gold standard. If the Better Business Bureau has blacklisted a company, they won’t be doing business for long. Visit Bbb.com.
- Trade and manufacturer “gossip.” You may be able to gather intelligence about your competitors from your suppliers. As you establish relationships with company representatives, you can start to ask them what they know about your market rivals.
- Friends. Do your friends know anything about your competitors’ businesses?
Identifying Weaknesses and Strengths
You’ve gotten a grasp on the competitive landscape. Now, what do you do with this information? You evaluate the intelligence you have gathered to assess your competition’s strengths and weakness. Having an understanding of these things will allow you to capitalize on their weaknesses and learn from their strengths.
One place to start is by looking at your market rivals’ websites. First, how popular are these sites? When you search for your product on Google or Yahoo!, are their sites among the first to come up? Here are a few other questions to ask yourself when looking at a website:
- What is your first impression of the site?
- Is the site user-friendly?
- Are you able to easily find what you are looking for?
- Does the site respond quickly?
- How is information organized?
- Is it easy to access?
- How does the shopping cart and payment processing software work?
You also want to look at your rivals’ prices, shipping options, return policies, diversity, and product presentation. Reviewing all of these things will allow you to determine how you can stand out in the marketplace.
Identifying Your Points of Differentiation
When you look at the information you have gathered about your competitors, next consider ways that you can do it better. Can you ship products more cheaply or offer them at a lower price? Can you develop a website that is more user-friendly? Can you offer incentives that your competitors can’t? Can you present your products in a more effective and appealing way? Can you market your business in a more creative fashion? Can you offer your customers better service? Believe it or not, this is a key success factor. Consumers are demanding. They want it now, and they want it with a smile. If you provide outstanding service, your customers are more likely to return to your site and recommend it to friends.
Evaluating the competitive landscape is an important step in developing a successful business. Having a grasp of who your competitors are and how they do business allows you to learn from their successes and failures. In turn, you can find ways to make your business stand-apart and attract more customers.
IMPress Action Checklist:
Below is a list of the steps that will help you identify and evaluate your competitors. Check off each step as you complete it to keep track of your progress.
- Identify your competitors
- Gather information on direct and indirect competitors
- Analyze your rivals’ business practices
- Determine if your competitors are financially sound
- Evaluate your competitors’ strengths and weaknesses
- Determine how you can sell your product or service better