How to perform a competitive business analysis to gain an edge

A competitive business analysis is a comprehensive summary of your major competitors, including their sales, marketing strategies, demographics, and market shares.

Understanding your business’s place in the competitive landscape can inform pricing strategies, marketing decisions, and branding choices. It can also help you determine how your business impacts industry trends. A competitive business analysis can help you identify what your competitors are great at, as well as gaps in their services.

For a small business, competitor insights can aid growth, help solidify your place in the market, and develop data-informed products and services.

To start, here’s a quick breakdown of how to perform a competitive business analysis:

• Research your direct and indirect competitors

• Complete a competitive SWOT analysis

• Compare your performance with your competitors’ performance by reviewing key metrics

• Highlight industry trends and opportunities

• Implement these insights into your own marketing strategies

• Continually monitor and update your competitive business analysis to keep it current

Learn more about how to do a competitive analysis for a business plan, including key strategies and metrics to get started.

Identifying competitors for competitive analysis in business plans

First, what is competitive analysis in business planning? A competitive analysis involves conducting in-depth research to understand how your competitors operate — and how you can build more informed strategies to remain competitive in your field.

The first step of conducting a competitive analysis for a business plan is identifying your business’s direct and indirect competitors. Direct competitors offer the same products and services as your company. An indirect competitor provides products or services that could meet similar needs or desires but aren’t identical. It’s more useful to focus primarily on direct competitors in your small business competitive analysis, as you’re more likely to have similar shoppers on a similar buyer journey.

Your competitive business analysis plan should also include both industry leaders and emerging players. Every market is evolving with new businesses establishing themselves and older businesses shifting their offerings. These shifts could impact your market position or present opportunities. It’s, therefore, essential to monitor competitor development so you can adjust your strategies accordingly.

Your business can utilize resources to identify competitor insights, including tools that analyze their target keywords, social media reach, backlinks, customer reviews, and even job openings. Free tools to consider are Moz, Ahrefs, and Google’s suite of resources such as Google Analytics and Google Trends. These platforms won’t give you every detail of your competitors’ strategies, but they will help you to build a comprehensive picture of their market penetration, social media engagement, customer satisfaction, and growth.

Gathering competitive intelligence

Competitor intelligence may include an analysis of your competitors’ products, services, and pricing. Where do they sell? What’s their chosen pricing strategy? What kind of sales funnels do they use to convert consumers? Do they sell through physical or online locations? Do they offer unique perks or benefits?

Learning about your competitors’ sales and marketing strategies can help your business discover alternative channels and methods. Competitors in your industry could be dominating short-form content on social media or long-form videos on YouTube. Alternatively, they could be focused specifically on email and referral marketing. While you can’t gather their campaign results, you can see publicly available information and analytics, such as social media engagements and comments, backlinks, and keyword rankings.

Finally, reading reviews and feedback is a great way to gauge consumer satisfaction levels. Shoppers could cite specific product or service features in their five-star reviews, or there could be a common issue shared within the one-star comments. Taking note of this will help your business avoid similar customer service mistakes and understand what’s working for your most successful competitors.

SWOT analysis of competitors

A SWOT analysis is a helpful technique for understanding how your competitors operate. Specifically, businesses can use a SWOT analysis to identify their competitors’ strengths, weaknesses, opportunities, and threats — aka SWOT. In a SWOT analysis, these elements are grouped into internal factors (strengths and weaknesses) and external factors (opportunities and threats). They are then organized into a two-by-two grid or matrix, with one quadrant for each element.

To conduct a SWOT analysis, start by asking questions about your competitors for each element.

Strengths

• What are their top-performing products?

• What sets them apart from our business and other competitors?

• Which unique resources are they operating with?

Weaknesses

• Which processes are setting them back?

• Are there any notable gaps in their business operations?

• What are their least-valuable products or assets?

Opportunities

• Which new market trends could they take advantage of?

• Are there any audience demographics they haven’t targeted yet?

• How could they improve their strategies to gain a larger market share?

Threats

• Which competitors currently hold the greatest market share?

• Are there any rules and regulations negatively impacting business processes?

• Which economic or political development could affect the industry going forward?

With these insights, you can better anticipate how your competitors might adapt their sales strategies, pricing, and marketing campaigns — and adjust your business plan accordingly.

You can also conduct a SWOT analysis on your own business to identify opportunities for growth in the market along with limiting factors and potential risks. You can then compare your own SWOT analysis with your competitors’ analyses. This can help you identify similarities and differences between your organizations as well as emerging industry trends to fuel growth.

Benchmarking and performance comparison for competitive analysis

You may still be wondering, “What is included in the competitive analysis of a business plan?” That’s where key metrics come in. If you’re looking to compare your business to your competitors, it’s important to identify and evaluate certain benchmarks related to performance.

For instance, you might use your competitive analysis to track the following metrics:

• Customer lifetime value (CLV): The total amount of revenue a business earns from a consumer relationship over time.

• Sales revenue: The amount of money a business earns from selling their products or services within a certain timeframe, such as a year or quarter.

• Customer acquisition cost (CAC): The amount of money a business must spend to acquire a new consumer.

• Net Promoter Score (NPS): A measure of how likely consumers are to recommend a business to their family and friends.

Consider an example of a competitive analysis in business planning. You might find that one of your strongest competitors has a higher CLV than your business. To improve your CLV, you might introduce a loyalty program to nurture relationships over time and keep consumers engaged with your business and products.

Understanding market trends and opportunities

Industry trends and developments have a direct impact on your business’s performance. They can affect what consumers care about, how much they’re willing to spend, and what new innovations they want to see. It’s important your business doesn’t follow or chase short-lived trends – they won’t always present opportunities for growth. Instead, your business should adapt to the most profitable and long-lasting market changes.

A competitive business analysis plan can identify gaps in the market. These insights can help your business find opportunities and make the most of them, whether that’s providing a faster service than others in your industry or developing a product made from more sustainable materials.

It’s also important to measure how your competitors respond to market gaps and changes. Which industry shifts have they paid attention to and embraced? Which have they avoided? How have their business metrics changed as a result? Understanding these metrics will help your small business develop its own competitive position in the market.

Setting pricing based on competitive analysis

Competitive business analysis and pricing go hand in hand. That is, you can use the findings from your competitive analysis to inform and adjust your pricing strategy. Depending on your competitors’ pricing, for example, you might take one of three approaches:

• Lower your prices: If competitor prices are high, you might have an opportunity to position your business as a cost-effective alternative.

• Raise your prices: If competitor prices are low, you might charge a premium and position your brand as a luxury alternative to cheaper options on the market.

• Keep your prices the same; If your prices are comparable to your competitors’ prices, you might take an opportunity to differentiate your business in a different way, such as by offering faster delivery, higher-quality products, and personalized loyalty programs.

Going further, you might consider changing your business plan to adopt common pricing strategies such as:

• Cost-plus pricing: Adding a fixed markup to the existing costs of production based on expected profit.

• Value-based pricing: Setting prices based on consumers’ perceived value of your products.

• Price skimming: Entering a new or emerging market with a high price to establish value and lowering it over time.

• Bundle pricing: Offering a combination of products at a lower bundled price to help increase average order values.

• Dynamic pricing: Adjusting prices based on market demand, changes in consumer behaviors, and seasonality.

Leveraging competitive insights for strategy

Once you gather competitor insights, you can incorporate them into your own business plan and strategies. For example, your SWOT analysis might reveal that a competitor offers fast e-commerce checkout experiences and shipping, but often handles a lot of returns. You can research why shoppers are returning competitors’ products and develop strategies to better meet their needs and increase market share. Or your SWOT analysis might indicate an opportunity to reach a new demographic with a new type of product. You might try price skimming to enter that new market with a high perceived value.

On the other hand, your benchmark research might reveal that your competitors are operating with lower customer acquisition costs. To compete, you might consider experimenting with new marketing channels — such as the ones they’re using — and building more efficient marketing campaigns to lower your costs.