There are several aspects of competitor analysis, as shown on the above graphic. It is absolutely critical that a marketer utilize competitor analysis in order to get a full understanding of what products the consumer might choose above yours, and why. I will go over the major aspects of competitor analysis now.
The first part of competitor analysis is fairly straightforward, a company simply identifies its competitors. While this sounds easy enough, sometimes it can be hard to recognize which products are a threat to yours. In the fast-food industry, for example, it is obvious that Burger King and McDonald’s are in competition. It is less clear, however, that grocery stores carry competition for these large chains as well. This is called and indirect competitor, and it is a company or product that doesn’t necessarily operate in the same type of market that you do, but still has the ability to provide an alternative to your product.
Another aspect of competitor analysis is the ranking of competitors. It is very important to understand which of your competitors is your biggest threat, and which is the least of a threat. If you underestimate, or overvalue a competitor, it can be very easy to spend way too much money diminishing the wrong threat. You have to know who to eliminate, and who to sweep under the rug.
Benchmarking the competition is also an important part of competitor analysis. Benchmarking simply means comparing one’s business to industry bests or best practices from other companies. It is a way to take the most valuable criteria, and ensure that your company is at least meeting if not exceeding these standards. It is a great way to figure out where you stand in the market, and how effective your practices are.
Competitor analysis is important because without it, your company will fail. It is crucial that you understand who else is out there, taking your customers. It is a very competitive market we are currently in, and as a result of this, it has become common practice for companies to size each other up, and keep tabs on each other’s operations.