Why Does a Small Business Need a Competitive Analysis as a Part of its Marketing Strategy?
As a small business owner, understanding your competition is essential for success. Conducting a thorough competitive analysis as a part of creating your marketing strategy can provide valuable insights to help you stand out in the market.
Unfortunately it seems like many small business owners aren’t familiar enough with the purpose of a competitive analysis. The purpose is to have what you need to put your business in a position to compete and win.
It tends to get treated more like academic jargon... Like a SWOT analysis... file it away somewhere to not be seen again, and off they go...
It doesn’t have to be that way. And it shouldn’t be that way. A competitive analysis should be a key part of a small business’s marketing strategy.
Here’s how you make it so:
I. Identify Your Direct and Indirect Competitors
Before diving into your competitive analysis, you need to identify your main competitors. It's essential to differentiate between direct competitors, who are competing for the same prospects with solutions similar to yours, and indirect competitors, who may or may not seem similar but they actually address the same customer needs through different solutions.
Direct Competitors: These businesses offer similar products or services and target the same customer segments as your company. They are businesses that do what you do, the way you do it, and they compete with you for the same prospects. To identify them, analyze the businesses in your niche and their offerings, and compare them with your own products or services.
Example: A local bakery's direct competitors might be other bakeries in the area that cater to the same clientele, offering similar baked goods and prices.
Indirect Competitors: These businesses may provide different offerings but still address the same customer needs or desires. They can be considered perceived competitors, as they may not be competing for the exact same customers but could still affect your market share.
Example: An indirect competitor for a local bakery could include a grocery store that sells baked goods or a restaurant that serves desserts. Another common example is a spreadsheet being an indirect competitor to bookkeeping software.
Here are some specific areas to further your assessment and get to know your competitors:
- Market Segment: Analyze the demographics, psychographics and geographical locations of your target audience. Compare your findings with your competitors' target market to determine if you're targeting the same customer segments.
- Pricing Strategy: Assess your competitors' pricing strategies and compare them to your own. If the pricing is similar and targets the same customer segments, you may be competing for the same prospects.
- Value Proposition: Consider your competitors' unique selling points (USPs) and how they differentiate themselves in the market. If their value propositions are similar to yours, they are more likely to be true competitors.
- Customer Reviews and Testimonials: Browse customer reviews and testimonials for your competitors. Look for similarities in customer needs and preferences between your business and your competitors. If you find that customers are comparing your offerings with those of your competitors, it's likely you are true competitors.
Create a List of Competitors: After distinguishing between true and perceived competitors, create a list of key competitors to analyze. Focus on the direct competitors that genuinely compete for the same prospects, as these businesses will have the most significant impact on your marketing strategy, marketing plan and business growth.
By differentiating between direct and indirect competitors, you can better focus your competitive analysis efforts and gain insights that will help your business effectively compete in the market.
II. Analyze Competitor Strengths and Weaknesses
Next, assess your competitors' products, services, marketing strategies and unique selling points (USPs). This information will help you understand what sets your business apart and where you may need to improve.
Recommendation: Visit competitors' websites, follow them on social media, and sign up for their newsletters to stay updated on their offerings and strategies.
III. Examine Competitor Market Positioning
Analyze your competitors' target audience, pricing strategies and distribution channels to understand their market positioning. This will help you identify potential gaps in the market that your business could fill.
Example: If your competitors target high-end customers with premium pricing, you might consider offering more affordable options to attract a different audience segment.
IV. Monitor Competitor Online Presence
Keeping track of your competitors' online presence can provide valuable insights. Analyze their social media activity, website performance and user experience. Additionally, review their online reputation and customer reviews to understand their strengths and weaknesses from the customers' perspective.
V. Learn from Your Competitor’s Successes and Failures
Identify best practices from successful competitors and adapt them to your own business. Similarly, recognize common mistakes and avoid them. Stay informed about industry trends and competitor moves to remain agile and adapt as needed.
Example: If a competitor's marketing campaign goes viral, analyze the elements that made it successful and consider incorporating similar tactics into your own marketing strategy.
VI. Conduct a SWOT Analysis
Perform a SWOT analysis to identify your business's strengths, weaknesses, opportunities and threats. Compare your results to your competitors' findings to uncover areas where you have a competitive advantage or need improvement.
Recommendation: Conduct a SWOT analysis at least once a year to stay updated on your competitive landscape.
VII. Turn Competitive Analysis Insights into Action
Create an action plan based on your competitive analysis findings. Adjust your marketing strategy, address weaknesses, and capitalize on strengths. Set goals and measure progress in relation to your competition to track your success.
Example: If your analysis reveals that your competitor's social media presence is lacking, invest more resources in your own social media efforts to stand out and attract customers.
How Often Should a Small Business Do a Competitive Analysis?
Continuous competitive analysis is crucial for small business success.
It’s the responsibility of the business owner to monitor the competitive landscape in order to guide and protect the business. And the insight from the competitive analysis is key to informing the marketing strategy.
There’s no dodging the need for and benefits of having the awareness that a well done competitive analysis gives you. By understanding your competition and adapting based on the insights you gain, you can stay ahead in the market and drive your business growth.