Are you about to start a new business/launch a new product, and you are just scanning articles, because you barely have 5 free minutes between your meetings?
STOP now, and don’t do anything until you finish reading this article!
Many people have that killer idea that could change their life (or even the world). It would be too bad to have all of it go to waste, because in the beginning they were not cautious enough…
It is essential to have a competitor analysis in the initial phase.
Why do You need a competitor analysis?
A similar question could be: Why do You need oxygen?
Because it is crucial for us to survive. Do you know what is essential for the survival of your startup and the new product mentioned in the first paragraph?
Having a well-structured analysis in your hands can help you to
- understand the market that you are about to enter (and the competition too)
- target the consumers of the specific segment
- understand the skills of your consumers and offerings
- predict the future of the market
- keep an eye on your competitors and their offerings
- reach potential customers
and the list goes on and on… (Btw, if you have a point to add, don’t hesitate, feel free to share it with us.)
Who should do the analysis?
You have two options by default. You either hire someone or you conduct the analysis by yourself.
Why you should hire someone:
These experts have already done dozens or even hundreds of these analyses. They have experience and routine, they probably have points and arguments you wouldn’t even think about in the first place.
Why you don’t want to hire someone:
Do you really want to share everything about your business with a stranger? Oh…and by the way, in most cases, nobody knows these things better than you (in connection with your business). Why would a complete stranger (or even if he’s not a stranger) know them better than you do?
So… how should you get it started?
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.
1. List your competitors
You need to sit down and think about this for a while. Two types of competitors can be distinguished: direct and indirect.
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
2. List the criteria
Okay, so now you have your competitors listed. The next (and almost certainly the most problematic) part is having a list with the criteria. Then you have to define the scale on which you want to give points to your competitors.
The scale can be tricky. There’s no use creating a scale with a wide range, but you will need at least 3 points in order for it to be effective. In this particular example I will use a 5 scale range. It is sufficient, but diverse enough to show the differences between the competitors. (The higher the point is, the better it is for the customer.)
After having a brainstorming session, you should have all your relevant criteria on a piece of paper.
My list consists of 8 criteria:
- Location (Is it close to the center or is it in the worst part of the town?)
- Prices (Do you need 3 credit cards to buy an appetizer or you can have a decent meal for a couple of bucks?)
- Places (How many seats and tables does the place have? Does it have seats at all?)
- Time (How long does it take to have your meal on the table? Hours? Minutes?)
- Quality (Have you been waiting for that delicious shrimp pasta for over a month? Or you just bolted down that greasy hamburger?)
- Online presence (Do they have advertisements, a Facebook page, a website or an application?)
- Special foods, orders (Can you have a pizza made from gluten-free flour? Can you order a smaller portion or a kid menu?)
- 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?)
So how will you know how many points each competitor is worth? The best way is to see it for yourself. If you have a chance to really try the given product or service, do it.
If you don’t, then ask somebody (somebody you can trust) to try it for you. If you don’t have the possibility of conducting those, the third option is for you. Ask the customers of your niche via interviewing, surveys etc.
After a long hypothetical analysis tour, I sat down with a full belly and started giving points to each competitor.
The hardest part was giving points to myself. You have to be honest, and give points to yourself according to the points of the others.
Giving unrealistic values to yourself will cause you problems later on.
The result was this table:
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).
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.
Ratatouille is a French restaurant, famous for its quality and history. (The legend says that many famous people were guests here.)
Everybody in the town knows that its biggest disadvantage is its price. (Although after a while this usually becomes more tempting, because of its prestige.)
However it is fairly far from the center (it was in the center by the time it was built, but the town has been rebuilt since then), the restaurant’s quality, diversity, and own mobile application makes it the most popular restaurant of the town.
Cafe Mania is a coffee shop near our restaurant. It’s not a restaurant, but they started selling sandwiches, hamburgers and fast foods last month, so they became our indirect competitors.
Their biggest strengths are price and time. You can get cheap food quickly.
Although it has weaknesses too: being a cafe, it doesn’t have many seats. Of course they don’t sell the best quality food, and they have almost no online presence (only a badly managed Facebook page).
Carl is a middle-aged man, he has a mobile buffet car, he’s been selling wings since his childhood. He inherited the business from his father.
According to our analysis Carl has some extreme points.
He has a huge advantage, because he is mobile and he is also cheap and quick.
His weaknesses are: he doesn’t have seats at all, he doesn’t have online presence (not even in the local newspaper…time for an update, Carl!) and he cannot give you any special foods, because of his narrow menu. Besides that he doesn’t pay attention to allergens at all.
Now you have every single thing in your hand, all you have to do is to analyze your data.
My method is creating net charts (with colored areas to make it even more visual), because it doesn’t matter if you do it for yourself or you have to present the results to a bunch of stakeholders.
Not everybody can understand tables full of numbers, but it’s easier for them to visualize the data this way.
In this particular example, I made 4 different net charts, each one representing the competitor’s and my own points.
What can we do to be better than the others?
- We don’t have as many seats as Italia does, but we don’t need as much time as they do. Keeping up this pace should be good.
- Our online presence is not too satisfying at the moment, but we can work on that (appearing on social media sites, local ads etc.). Who knows, one day we might have our own application too.
- Paying more attention to the children and handicapped can also be profitable, and it doesn’t take too much effort (unless we have to reconstruct the whole building).
- Improving our quality and serving special foods (creating several options without allergens and meat for example) can also be an option, if it’s possible for our budget.
And the list goes on and on… Do you have anything to add? Feel free to leave a note. 🙂
Do you have any thoughts or feedback? Discuss it with us.
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