How to Do a Competitive Analysis (Step-by-Step Guide)

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Many first-time entrepreneurs jump into the market with an idea and think customers will automatically see it as unique. But in reality, customers are always weighing their options between you and a dozen others. There are a ton of other products and services out there vying for your ideal customer’s attention at every point in time. That’s why an important part of starting a business is conducting a competitive analysis.

In this article, you’ll learn what a competitive analysis is and how to conduct one to ensure that you’re not left behind in the market.

What is competitive analysis?

Competitive analysis is the process of studying your competitors to understand what they’re doing well and where they’re falling short, with the intention of finding out how you can stand out from them.

It means researching and evaluating your current and even your potential competitors to understand their strengths, weaknesses, strategies, how they are positioned in the market and so much more. 

The goal at the end of this analysis is to identify opportunities, threats, and gaps you can take advantage of to strengthen your own business, product, or brand.

Who are your competitors? 

Your competitors are any businesses, products, or services that solve the same problem your business wants to solve.

They don’t have to look exactly like you or sell the same thing, or even operate in the same format. If they’re an option your potential customer could choose instead of you, count them as competition.

There are different types of competitors:

1. The direct competitors

These are the businesses offering the same or very similar products or services to the same audience you’re targeting. For example, Nike and Adidas, they both make sportswear and sneakers for athletes and lifestyle buyers. Or Coca-Cola and Pepsi. They are direct competitors.

2. The indirect competitors

Indirect competitors solve the same need or problem but with a different type of product or service. The only link between your business and theirs is that you are both solutions to one problem. They may not even be remotely related to your business. 

Examples are Netflix and YouTube. Both satisfy the need for entertainment, but one is subscription-based streaming while the other is free, user-generated content. Also Uber vs car dealers. Both solve the “getting from A to B” problem, but in different ways, so they compete.

3. Replacement/Substitute competitors

Sometimes, customers may choose a totally different option instead of your product or service. In that case, they go to the substitute or replacement competitors. These competitors aren’t obvious, but can replace the need for your product entirely and that’s why you should watch out for them. An example is a cinema vs TikTok/Instagram reels. Someone might skip the movies entirely and just get entertainment at home.

4. Future competitors

These are the new players or trends that may not seem like competitors yet, but will be soon. For example, ride-hailing apps were once future competitors to traditional taxis before they took over. Same with retail stores and online shopping platforms.

So you must understand that no matter the industry, your competition is vast and is not limited to your direct competitors. 

The mistake most entrepreneurs make is they only see direct competitors. They forget that indirect or substitutes can steal just as many customers. You must be aware of the broad range of competitors you have in the market to truly stand out. Remember, if your customer can say, “I don’t need your product because I can just use this one instead,” that is your competitor.

Why should you care about your competitors?

Competitive analysis can feel like a lot of work. After all, why spend time looking at your competitors when you could just focus on building your own thing? It’s a fair question, and you’re not wrong to ask it. But while you can actually start a business without doing all of this, here’s why this is important:  

1. Your customers compare you anyway Even if you don’t study your competitors, your potential customers already do. Before they patronize your business, they’re comparing the prices, features, reviews, and experiences of other businesses with yours. They always look for alternatives. If you don’t know how you measure up, you’re already at a disadvantage.

2. It saves you from reinventing the wheel When you’re starting a business, why spend months guessing what works in that industry when you can see what’s already working for others? Competitive analysis lets you borrow lessons from others and know what to do, and just as importantly, what to avoid, without wasting time and money on trial and error.

3. You find the gaps they’re missing When you conduct competitive analysis, you discover gaps in your competitors that you could fill to push your product up the ranks. No competitor is perfect. Maybe their customer service sucks, their prices are too high, or they’re ignoring a group of people who want the product. When you find those weaknesses, they are your opportunities to stand out.

How to do competitive analysis (A simple step-by-step for beginners)

Here’s how to conduct a competitive analysis step by step:

Step 1: Find your competitors

Your competitors are anyone who could take money away from you by solving your customers’ problems instead of you. We’ve previously discussed the different types of competitors. Now, with that knowledge, you have to find 5 to 10 of them for this analysis. There are many ways to find your competitors, some of the ways are:

• Go to Google Search, type in what you sell or your service and see who shows up.

• Look at social media, search hashtags, TikTok trends, or Instagram accounts related to your niche. You’ll find your competitors everywhere.

• Ask potential customers if they weren’t buying from you, who would they go to?

Step 2: Collect key information about each competitor

Now that you have the names of your competitors, you need to gather more details about them. For each competitor, you can note these bits of information:

• What they sell or what service they render

• Their pricing (notice if it’s cheap, mid-range, premium). If no prices are listed, check reviews or customer comments.

• Who they target. 

• How they market themselves (you can look at their website, social media platforms, ads, influencers).

• What they sound like, aka, their brand voice. 

• Customer feedback (read the reviews on Google, Yelp, Trustpilot, or even comments under their posts).

• Collate all of this information in a spreadsheet or any document of choice. You’ll need them as you conduct this analysis.

Step 3: Analyze what you found

You’ve collated all the data about your competitors. Now, instead of just looking, start interpreting the data. 

Look at the brands, what are their strengths? Maybe their location is convenient, or their app is easy to use. What are their weaknesses? Maybe their customer service is bad, or their product is overpriced. Do you notice patterns in the industry? For example, if all competitors are using Instagram but not TikTok, that’s a gap. And finally, what opportunities do you see? 

Note all of these down as you pore into the data in your spreadsheet.

Step 4: Compare them to yourself

Now that you’ve gathered information about your competitors and analyzed them, the real work begins. Look at your business side by side with theirs. Try to figure out where you naturally stand and how you can position yourself in the market.

You can use this simple but powerful tool to help here. It is called a SWOT analysis. SWOT stands for:

• Strengths: What you’re already good at like unique skills, better pricing, stronger customer service.

• Weaknesses: Where you might struggle like less experience, limited budget, small team.

• Opportunities: Gaps in the market your competitors aren’t serving.

• Threats: External factors that could hurt you like bigger competitors or new regulations

By laying this out, you’ll clearly see where you can shine. Maybe you can’t compete with a giant brand’s budget, but you can outdo them on speed or unique offers.

Step 5: Turn the insights into action

You’ve completed your competitive analysis but it shouldn’t stop there. Your findings should shape or add insight to your business strategy. Because that’s the main goal of conducting a competitive analysis. 

Use what you learned to define your position. After looking at your competitors, do you want to be the affordable option, the luxury option, the fast option, or the niche one? Your findings should also influence the way you market your business. If competitors sound very formal, you might stand out by being casual and fun.

After studying the market, you can also improve your own offer and fix the gaps they leave behind. For example, if customers complain that a clothing brand doesn’t offer plus sizes, your action might be to include inclusive sizing from day one.

Conclusion

At first, competitive analysis might feel like one more “chore” to check off your to-do list as you start a business. In fact, you might even be tempted to skip it. But trust us, starting a successful business is more likely when you have an understanding of the field you’re competing in.

Do a comprehensive competitor analysis and turn those insights into action points for your business. Use them to adjust your offer or carve out a niche that no one else is serving yet. This will help you build a business that will stand the test of time.