Competitor analysis is absolutely essential if you have to grow in a competitive market. It is becoming increasingly important because of the rise in competition in each and every sector. Whether electronics, automobiles, or FMCG, each sector today is facing immense competition affecting margins and sales.
Thus there are some critical steps of competitor analysis to be followed by these organizations to outperform their competition. However, they will be able to stand out only when they KNOW their competition. This is where the step by step competition analysis comes in the picture.
1) Identify current and future competitors in the market
The best way to identify current and future competitors is to analyze your target products. Supposing you are currently selling hair oil. You need to know how many branded and unbranded players are there in the market. You need to know if any new company is starting to sell Hair oil or if any current company might stop selling the same.
Furthermore, you also need to know how many of your customers prefer some other product over Hair oil. Thus by doing this you know your direct and indirect competition. This is the first step in competition analysis.
2) Finding and Analysis of market share
Naturally, once you have identified the competition, the second step is to know their market share. You cannot know the strengths and weaknesses of your competition unless and until you know their presence. Thus if your product is selling in a wide region, you need to break down the region into territories and find out the share of wallets in each territory.
While doing this, you can also do a mini-market research to find the reason for the sale of your competition. Is it selling because it is easily available, quality is high or the price is low. This step will help you perform a SWOT.
3) Performing SWOT for a competitor analysis
Once you know the share of the market and you have done your secondary and primary analysis, you need to actually work out the strengths, weaknesses, opportunities and threats for each of your competitors in turn.
This is important as this shows where you currently stand in your industry, who do you need to benchmark to move forward, and what strategies can be most effective to stay on top or to avoid a drop in rank. The SWOT is indirectly responsible for showing you the steps where you can capitalize and move ahead of your competition.
4) Build competition portfolio for competitive analysis
Once you know the SWOT of your competitors, you can build a competitive portfolio. A competition portfolio will have each and every product of your competitors, their features, logistics, tangible features (product qualities), intangible features (product service), etc.
This portfolio needs to be treated like MIS and needs to be updated from time to time. The best source for building a competition portfolio is your sales force itself. They are continuously in touch with the market and therefore can immediately notify you of any changes happening in the market.
5) Plan strategies
Now you have your complete competition portfolio in front of you. Thus you clearly know your line of action. If the competition is far superior, you have two ways to move forward. You can either try the same strategies as a top competitor and slowly move on top OR you can go creative/innovative and try to directly take on the market leader. Read more on Market challenger strategies.
At the same time, if the competition is average and you can reach the top through some effort, then do not procrastinate and put the best strategies forward to reach the top at the earliest. Remember – If reaching the top takes much effort, then staying on top will take double the effort from the complete organization. You can also read, Market follower strategies.
6) Execute strategies
Quite simple. Execute the strategies which you think are the best and make sure of executing them effectively. There is no meaning of going to such an effort to analyze competition and then fail at the implementation part. At the same time, it is very important to have a contingency plan and to anticipate your competitor’s reaction.
If your competitor reacts too strongly, but the contingency plan in place to avoid any long term affects to the brand / product. This might cause you to lose the advantage of surprise, but it definitely gives you more chances to form even better strategies (To be truthful, very few companies have actually gotten their strategies “spot on” the first time itself). Thus contingency plans while executing strategies are very important.
7) Follow up and perform competitive analysis
Statistics are always useful for a firm and help the firm in practical decision making. Thus by following up you are making sure of quantitatively and qualitatively measuring the response to the executed strategy. Ideally, the same should be documented so that future generations of marketers may know the earlier strategies implemented and might be able to revive the same through different angles.
At the same time, you might actually execute a strategy that gets excellent response from customers. In these cases too, you need to stick with the same strategy for a longer time and in such cases, it is crucial to have the feedback from your customers so as to know at all times whether the strategies are working effectively. Thus follow up is essential for long term competitor analysis.
In the end, whatever strategies you make, your competitor is going to respond. This needs implementation and updation from time to time. There are very few industries in which there are only 3–4 players. In fact, major industries are characterized by as many as 10–20 different competitors (branded, unbranded, direct, indirect). Thus, it helps you in pinpointing your current standing in the market and the future direction.