When you finalize your list, aim to include a diverse set of companies to get an accurate assessment of what the market is like. You should consider businesses that fall into each of the 3 categories of competitors.
Direct competitors sell a similar product or service to a similar target audience. These are likely the companies that first come to mind when you think of your competition. For example, McDonald’s likely considers other fast food burger chains like Wendy’s and Burger King to be its direct competitors.
Indirect competitors sell a different product or service in the same category but target an audience similar to yours. For example, takeout pizza restaurants like Domino’s and Papa John’s are indirect competitors of McDonald’s.
Replacement competitors exist outside your product category, but they satisfy a similar customer need. For McDonald’s, replacement competitors could be any solution that consumers turn to when they’re hungry, including products such as frozen meals. Of the 3 types of competitors, replacement competitors are the hardest to identify.
When conducting a competitor analysis, you should focus most of your attention on direct and indirect competitors. Still, it’s worth briefly taking stock of potential replacement competitors that could threaten your business prospects.
2. Create a competitor matrix
Before you dive into your competitor analysis, take a moment to get organized. A competitor matrix, also known as a competitor grid, is a table or spreadsheet you can use to compile your research. This will make it easier to compare your findings across competitors and spot larger trends.
Start by devoting one row or column to each competitor that you’ve identified. On the other axis, list data points or categories of information you’d like to find out about each competitor. Don’t worry if you’re not sure what you should be looking for at this point. You can also always add more categories as you progress through your research.
3. Gather background information
Once you have a list of competitors to research, start learning about their businesses. Look for the most basic information first, and then build your way up from there. Start by looking at company websites, social media pages, and any news articles that have been published about them. Here’s some basic information that you may want to look for.
This includes information such as founding date, funding sources, and any mergers or acquisitions they have been involved with. You can often find this information by reading the “About” section of their website or browsing past press releases from the company. Studying how your competitors got to where they are today will give you a more complete understanding of their businesses.
This will vary greatly based on your industry. If you’re in the e-commerce business, you could be competing against companies that sell their products worldwide. For traditional brick-and-mortar businesses, your competition is likely highly localized. Either way, it’s always smart to know where your competition is based and where they sell.
How many people do your competitors employ? LinkedIn and Glassdoor are helpful resources for this kind of data. You’ll also want to look into how many customers your competitors have and how much revenue they generate. This information will likely be easily accessible online for larger companies. For smaller and privately held companies, you might have to make do with rough estimates. Knowing how large your competitors are will help you better contextualize the rest of the data you collect.
4. Profile your competition’s target customers
A company is nothing without its customers. Getting an idea of who your competitors sell to will tell you a lot about their businesses. To pinpoint the target customer for any business:
- Read their mission statement.
- Look at what kind of messaging they use.
- Track who they interact with on social media.
- See if they feature any existing customers in their content.
Use this information to construct a profile of who your competitors are trying to reach with their products or services. These customer profiles will probably resemble your own target customers—these are your competitors, after all—so make note of even small differences.
5. Focus on the 4 P’s
Now that you’ve identified the target customer for each competitor, it’s time to look into how they go about reaching that segment of the market. This will require a deep dive into their marketing strategies.
The marketing mix, also known as the 4 P’s—product, price, promotion, and place—covers the must-have elements when bringing a product to market. As part of your research, ask yourself the following questions for each competitor you’ve selected.
- What are they selling?
- What features are included in their product or service?
- What is most appealing to customers about the product or service? What are some weak points of the product or service? (Pro tip: Check out customer reviews.)
- What kind of pricing model do they use? Is it a one-time purchase or a subscription?
- How much do they charge for their product or service? Do they offer sales or discounts?
- How does their pricing reflect the quality, or perceived quality, of their product or service?
- How do they get the word out about their product or service? What advertising channels (social media, email marketing, print advertisements, etc.) do they use?
- What elements of their product or service do they emphasize? What’s their unique selling proposition?
- What’s their company story? How do they talk about their brand?
- Where do they sell their product? Do they sell online or in brick-and-mortar locations?
- Do they sell to customers directly, or do they partner with retailers or third-party marketplaces?
These questions are meant to be a starting point. Feel free to expand on them and tailor your questions to your industry and the goals of your research.
You’ll likely find a lot of information. Try to condense your findings into short bullet points that you can easily reference later. Be sure to include quantitative data where appropriate if you’re able to find it.
6. Analyze strengths and weaknesses—yours and your competitors’
Using the information you’ve collected, consider the strengths and weaknesses of each of your selected competitors. Ask yourself why consumers choose a particular company’s product or service over the other available options. Record your conclusions in your spreadsheet.
Last, consider your own company’s strengths and weaknesses. How does your business compare to the competitors you’ve researched? Knowing what sets your business apart from the competition—and where it falls short of expectations—can help you better serve your target customers.