Before new small businesses hang their shingle, owners should not only know a thing or two about their target market, but also a bit about who else is targeting that market.
Mark Cuban, well known for his role on “Shark Tank,” sums up the importance of competitive research. “Make your product easier to buy than your competition, or you will find your customers buying from them, not you.” Understand what your competition is doing and find ways to make your business stand apart.
Identify Your Competitors
See who’s in your space. If you’re focused on competing with local brick-and-mortar businesses, start with a local business directory or your local chamber of commerce. Explore Google Local Guides and see what comes up on Yelp in your area.
A keyword search can quickly identify your top online competitors. Say you make custom suits in Los Angeles, for example. If a potential customer is searching for “custom suit maker in LA” on Google, will your name come up? If not, who will they find? Visit competitor websites to see what marketing tactics they’re using. Google Adwords has an Auction Insights tool which lets you to see who’s bidding on the keywords you want.
Conduct Your Own Competitive Analysis
Gather a basic understanding of what your competitors are doing. You can glean a lot just by visiting their business. Go into their business — online and the physical location — and take notes on the entire experience.
How did you feel?
Consider your first impression. If your first impression was a good one, examine why. If it’s a trendy pet groomer, maybe they had a great window display. If it’s a bakery, maybe their open doors meant the smell of fresh bread invited you in. In a retail space, you may have been greeted at the entrance and immediately told about current sales.
A tea shop might have offered you samples; a mechanic might have provided complimentary coffee and cookies for waiting customers.
An online shop’s first impression has just as much impact.
Examine the flow of the store setup. If there’s a table out front, note if it has discounted items on it or the newest arrivals. In a retail clothing store, markdowns may be toward the back to get customers to walk through the whole store before reaching them. Take a look at how items are displayed. A jewelry store might present necklaces on stand-alone mannequin displays. A specialty bakery might display artisan chocolates in a well-lit glass case.
On a website, consider ease of navigation and if finding what you need follows an intuitive process. If the website is poorly organized or the interface is crisp and clean, explore how these affect your usability and ultimately your experience on the site.
How were you treated?
Analyze the greeting. If you were greeted when you entered the store, delve into how this affected your experience. If you walked into a jeweler and you were treated like you didn’t belong there, that would certainly affect the quality of your visit.
Note the help. If someone helped you as you were shopping, consider how they went about answering any questions you had.
Online, you might find it easy or hard to contact customer service and might be inundated with sales and marketing pop up messages. If this bothers you, make a note so you can implement a different approach.
Consider the checkout experience. When you checked out, note how the cashier handled herself. If she tried to upsell, note her approach. She might have offered you a loyalty or punch card for future purchases.
How are they operating?
Figure out their pricing strategy. If prices are high, evaluate why this might be. They may be tailoring products to an affluent shopper or they’re setting initial pricing high so they can advertise deep discounts without cutting into their profits. If their products or services are priced low, figure out how they can afford this.
Find out what payment methods they accept and what their return policy is. Online, consider their shipping policy.
Take a look at their employee structure. A store might have a large staff or just a few employees doing many jobs. Though it may be behind the scenes, if the business has very few employees, they could be using independent contractors or vendors to cut down on overhead. If employees work on commission, consider whether it affected the quality of your experience and if you felt pressured to purchase.
Examine how they handle their workflow. See if the person at the front door greets you and stays at the front while you move through the store and are helped by someone else, or if the same person who greets you also helps you throughout the store and follows you through to checkout.
If someone is taking inventory or folding clothes while the store is open, they could be doing this so they’re not paying employees to stay after hours.
Examine their branding. The store has positioned themselves somehow. Consider how the marketing materials reflect that brand. Look at images they use in the store, the copy, the colors or logos they use throughout. If they have catalogs, business cards or flyers, note how they’re presented. Online, look at how they showcase products or services and what the website feels like.
Consider their social media and email use. Notice any signs that request Yelp reviews. See if any social media logos — like Twitter or Facebook — are on business cards. If you see they have an email list out for people to add their names to, add that to your notes. Decide whether the same social media channels and email gathering methods would work to amplify your brand’s voice and tell customers about new products or services you’re offering.
Other things to look into
Once you’ve visited their business, see what other information is available via public records. Consider looking into:
- Basic background: ownership, organizational structure and company history
- Offering: product and service lines
- Financials: gross annual revenue, profit-earnings ratios, growth rates
- Staff: number of employees, compensation policies, key personnel profiles
- Production: facilities, suppliers, service vendors, logistics
- Marketing: target market, marketing objectives, strategies, promotional campaigns, competitor pricing
These six are just ideas. You may not know this information — or even have access to it — and you certainly don’t need it to get a good grasp on what your competition is doing.
Build Your Own Strategy
Now, decide how you want to apply your competitive research. Ask yourself what you can do better.
Create profiles of both current and potential competitors who might enter your market. Your profiles should analyze strengths, weaknesses, objectives and marketing strategies. Take a look at how you plan to take market share away from your competitors and how you think they might respond.
Don’t forget to look at bigger competitors. You may not be able to compete with Amazon or Target on a scale level, but you can certainly learn a thing or two from their business models and customer service. Consider what larger companies within your same niche are doing right.
Find untapped markets. You might see that one of your competitors is focusing on the consumer market without marketing aggressively to business customers. Tailor specific marketing to business customers.
You could find that your competitor advertises on keywords for a major city but doesn’t do much with keywords for surrounding suburbs.
Understand market saturation. Market saturation occurs when product distribution within a market has reached a point where demand is unlikely to grow.
If almost everyone on the block is already subscribed to the local newspaper, a delivery boy assigned to that block would have little room to grow his business as long as his route is confined to that block. He would probably need to expand to another block where fewer people are subscribed to grow his business.
You don’t want to enter a market that doesn’t have much room to grow. Starting a new small business is already demanding, and entering a saturated market is wrought with additional challenges including developing an innovative product, finding a way to deliver a product at a lower price point, offering superior logistics, providing better value or service or uncovering an unsaturated niche.
The best indicator of market saturation is market growth rate, which can be found in industry-specific reports from Forrester, Gartner, MarketsandMarkets, and U.S. government sources such as the SBA’s Business Data and Statistics page, the U.S. Census Bureau’s Data Access Tools and FedStats.gov.
When you identify a market with a high year-over-year growth rate, you may have uncovered a potential market to enter. Look at what your competitors are already doing to serve that niche, and consider ways you can serve it more effectively.
Don’t emulate, innovate. If you didn’t like how the clothing store’s employees were pushy because they were paid on commission, consider not using this pay method for your first employees. If you noticed a marketing channel your competitor is failing to use effectively or a demographic they’re neglecting, integrate ways to make these work for you.
Track Your Performance
Once you’ve conducted your own analysis by visiting their business in person and on the web, keep tabs on the competition online.
Keep tabs on review sites. Review sites like Yelp, Google My Business and the Better Business Bureau’s website let you know what customers are saying about your competitors. If a customer has reviewed your competitor commenting on poor customer service, take a mental note and make an effort to offer better customer service.
Maybe a customer has complained about the hours of operation, like a cafe that opens late on a Sunday morning. You may consider this when you’re changing up your own cafe’s hours.
Create a private Twitter list. When you follow someone on Twitter it alerts that person (or company) that you’re looking at whatever they post. When you make a private Twitter list, you can monitor what your competition is posting and sharing without letting them know you’re watching. Creating a Twitter list lets you group all these competitors into one organized place, see what’s working for them and then adapt it to your business, all while you remain anonymous.
Say the competition coffeeshop sent out a Tweet on Sunday morning about a sale. It got very few shares. But they posted that same tweet on Wednesday afternoon and it performed beautifully, attracting hundreds of likes and shares from their audience. You can use this information to your advantage by scheduling your own tweets for when you know they perform best for your same audience.
Use Facebook Insights. Similar to a Twitter list, Facebook lets you add “Pages to Watch” within its Insights section. Add competitors to this watchlist to see what’s happening in your industry.
Check out SEMRush. SEMRush is the leader in web analytics, allowing you to see who’s ranking for the same keywords you’re vying for. The software can provide more detailed information on your online competitors’ SEO and PPC performance, giving you ideas and insights for blog content or a possible Google AdWords campaign. This isn’t priority one as a small business, but a good resource for your venture as it grows.
Measure with Hootsuite or Oktopost. What good is social media if you don’t track your results? Hootsuite and Oktopost let you schedule, measure and monitor your social media strategy to see how your business stacks up against others in terms of shares, likes, click-through rates and page views.
The goal of a competitive analysis isn’t to just copy what your competitors are doing. If your competitor is doing something well, find out why it works. If there is a place you can do better, develop a plan to make it happen.