Effective Competitive Analysis

For your small business to succeed, you need to know almost as much about your competitors as you do about your own company and customers. Unfortunately, many small business owners make the mistake of waiting until a competitor has opened up shop across the street and is cutting into profits to find out who and what they're up against.

A competitive analysis allows you to identify your competitors and evaluate their respective strengths and weaknesses. By knowing the actions of your competitors, you will have a better understanding of what products or services you should offer; how you can market them effectively; and how you can position your business.

Competitive analysis is an ongoing process. You should always be gathering information about your competitors. Look at their Web sites. Read their product literature and brochures. Get your hands on their products. See how they present themselves at trade shows. Read about them in your industry's trade publications. Talk to your customers to see how they feel about competitive products or services.

Click on the steps below to learn more about how to analyze your competitors:

• Step 1: Identify your competition
  
• Step 2: Analyze strengths and weaknesses
  
• Step 3: Look at opportunities and threats
  
• Step 4: Determine your position.
  

Step 1: Identify your competition

Every business has competitors, and you need to take the time to discern who your customers can approach to get a product or service that fills the same need as yours does. Even if your product or service is truly innovative, you need to look at what else your customers would purchase to accomplish this task. For example, you may be opening a Web site that offers online Bingo. Your competition would be other Bingo sites, other Web gaming sites, the Bingo hall down the street, and any other businesses that are competing for the same leisure-time dollars.

Begin by looking at your primary competitors. These are the market leaders, the companies who currently dominate your market. They are probably the ones who you find yourself bumping up against in your search for new customers. If you're a florist, it would be other florists in your neighborhood. If you're a computer consultant, it would be other consultants with the same specialty.

Next, look for your secondary and indirect competitors. These are the businesses who may not go head-to-head with you, but who are targeting the same general market. Sticking with the florist example, it might be a small local roses-only store, a national floral delivery service, or the flower/plant department of your local supermarket or discount store.

Finally, look at potential competitors. These are companies who might be moving into your market and who you need to prepare to compete against. For example, you might have an independent frozen yogurt stand; you will need to prepare to compete against national frozen yogurt franchises, even if they are not yet in your market.

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Step 2: Analyze strengths and weaknesses

After you've figured out who your competitors are, determine their strengths and find out what their vulnerabilities are. Why do customers buy from them? Is it price? Value? Service? Convenience? Reputation? Focus as much on