How To Conduct A Competitor Analysis? [Step-by-Step Guide]

How to conduct a competitor analysis?

In the following 5 steps, we take a look at how to start a business to make it successful.

STEP 0 – Have a startup, a new product or anything that needs a competitor analysis

My example in this article will be a restaurant called The Brew that I am about to open in a small town called CompetiTown.

STEP 1 – List your competitors

The first step in a competitor analysis is to list your competitors. But watch out! You need to sit down and think about this for a while.

Two types of competitors can be distinguished:

• Direct competitors can be other restaurants in CompetiTown, especially those which are in your given area (however, those outside the area can be important too). These competitors sell the same things that you intend to.
• Indirect competitors don’t sell the same products, but substitutes of yours. In this given situation, even the old man selling hotdogs in front of your restaurant can be considered as a competition of your business.

My list has 4 competitors:

• Italia: an Italian restaurant in the downtown
• Ratatouille: a fancy French restaurant in the outer parts of the town
• Cafe Mania: a coffee shop near our restaurant
• Carl: ‘the wingman’, selling chicken wings from his mobile buffet

STEP 2 – List the criteria used for competitor analysis

Alright, you’ve got your list of competitors. That’s a great start! The next step, which can be a bit challenging, is to create a list of criteria to rate them. You’ll also need to decide how to score your competitors.

Choosing the right scale for scoring can be a bit tricky. You don’t need a scale with a ton of points, but you should have at least three to make it useful. In this example, let’s go with a 5-point scale. This is enough to show the differences between the competitors without being too complicated.

💡 Remember: the higher the score, the better it is for the customer. Let’s dive into how you can use this scale to really understand where your competitors stand and where your business can shine!

After having a brainstorming session, you should have all your relevant criteria on a piece of paper.

My list consists of 8 criteria:

1. Location: Is it close to the center or is it in the worst part of the town?
2. Prices: Do you need 3 credit cards to buy an appetizer or you can have a decent meal for a couple of bucks?
3. Places: How many seats and tables does the place have? Does it have seats at all?
4. Time: How long does it take to have your meal on the table? Hours? Minutes?
5. Quality: Have you been waiting for that delicious shrimp pasta for over a month? Or you just bolted down that greasy hamburger?
6. Online presence: Do they have advertisements, a Facebook page, a website or an application?
7. Special foods, orders: Can you have a pizza made from gluten-free flour? Can you order a smaller portion or a kid menu?
8. Children, handicapped: Do they have a special place and programs for children? How easy it is for a handicapped person to get into the building and have a night out?

STEP 3 – Research your competitors

Wondering how to figure out how many points to give each competitor? The best way is to see for yourself. If you can, try their product or service.

If that’s not possible, ask someone you trust to try it out and give you their honest opinion. And if neither of these options work, there’s a third way. Reach out to customers in your niche through interviews or surveys to get their take.

After a thorough analysis, it’s time to sit down and start scoring each competitor. But here’s the tricky part: scoring your own business. It’s super important to be honest.

Score yourself in the same way you scored the others. If you give yourself scores that are too high and not realistic, it could lead to problems down the road. Let’s dive into how you can do this effectively and fairly.

The result was this table:

STEP 4 – Analyze your data

Now you have your list with the points. It’s time to summarize your observations and lay down your conclusions. Write down every important information (later on you can choose which ones to keep).

1. Italia

Italia (the town’s only Italian restaurant) has several strengths and only one outstanding weakness.

Its biggest weakness is time. However they have freshly made pizza and pastas, it takes relatively much time to be done.

Italia compensates this with having the most seats from all of the available restaurants. The other criteria are not so outstanding: they are fairly similar to The Brew.