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Conducting a competitor analysis is now commonplace in the business world. Every business across different industries is trying to identify gaps in their competitors' operations that will serve as a business opportunity for them to increase their market share, patronage, customer loyalty, etc.
This is completely normal and beneficial, too. While it has advantages, it also comes with disadvantages. In this blog article, we'll discuss the advantages and disadvantages of a competitor analysis for your business.
We'll also discuss what it is, why it's important to your business, and the factors that significantly influence the success of a competitor analysis.
What is a competitor analysis, and why is it important to a business?
Competitor analysis is an evaluation of the strengths and weaknesses of your competitors, both current and prospective.It's like studying your opponent's moves, their success strategies, and their weaknesses while playing a game and using them to your own advantage. You have to be critical about the areas you want to understand about your competitors.
These areas could be the products or services that they offer, their marketing strategies, their market share, the technological advancements they are using, etc. By being critical, you'll be better informed on what you can do to stay ahead of the competition.
One of the main reasons for doing a competitor analysis is to inform you of the current standings of your competitors and how you can match up and stay ahead.
Another reason for conducting a competitor analysis is that it can help you with your unique selling point. You can only have something unique to offer when you have done research to verify your uniqueness.
In general, having a good understanding of how important a competitor analysis is to your business and applying the information you get from it will equip you to take the lead in the marketplace.
Factors that Influence the Success of a Competitor Analysis
The success of a competitor analysis greatly depends on some factors. Let's take a look at four major factors that, if present, will lead to the success of the process:1. The quality of the data available
Gathering sufficient data about your competitors may not be all; it has to be of great quality. The quality of the data on your competitors at your disposal will determine the outcome of the analysis.Since the goal is to obtain and use relevant information about your competitors to develop your product or improve your service, you need to get your facts and data right.
You need to have access to accurate, reliable, and up-to-date information about your competitors' products, their customer feedback, their marketing strategies, pricing, mode of operation, etc. that you can use to make informed decisions.
2. An effective analytical method
Having access to reliable data may not necessarily be enough. You need to make use of an effective analytical method to both organize and interpret the data you've gathered.You can make use of SWOT analysis, Porter's Five Forces, or any other analytics model as long as it provides a structured approach for determining the strengths, weaknesses, opportunities, and possible threats of your competitors.
3. Focus on key competitors
Just because you want the information of competitors doesn't mean you'll do so for every business that offers either a product or service that you offer or intend to.You have to focus on those with the potential that you seek to understand and use to your advantage. This is why your data gathering approach must be targeted.
This will help you to optimize the resources that you'll use to collect and analyze the data and, in turn, use the information you get to inform the decisions you make for your business.
4. Strategic alignment of insights
After obtaining the information you need from the analysis, you need to strategically align your business with the findings.What this means is that you can improve your products or services in the areas that your competitors are lacking, reach the audience they are not, thereby increasing your market share, etc.
You want to apply their areas of strength to your business and then capitalize on their areas of weakness to your advantage.
By carefully aligning your business to be the solution in areas where your competitors are lacking, you'll be able to take the lead in your industry.
The Advantages of a Competitor Analysis
Conducting a competitor analysis comes with so many advantages. Let's discuss four advantages that a competitor analysis brings to your business:1. Strategic insights
By conducting analysis on your competitors, information about their strengths, weaknesses, market share, market positioning, marketing and sales strategies, etc. will be made available to you.With this information, you can gain valuable insights that allow you to properly develop your products or services or make adjustments to your strategy.
2. Competitive advantage
Competitive advantage is another great benefit that a competitor analysis can give you. It is your unique selling point in the marketplace that offers you the opportunity to stand out in the crowd.With the insights you get from the analysis, you'll know how to go into the marketplace with products or services that are different from what your competitors are currently offering.
With your competitive advantage, you stand a chance of increasing your market share, increasing patronage, and, most importantly, gaining the loyalty of customers.
Read also: Harnessing competitive-edge products for market dominance
3. Market opportunities
Conducting a competitor analysis reveals gaps or areas of weakness about your competitors. These gaps are market opportunities waiting to be harnessed.By identifying these gaps, you can capitalize on them as opportunities for you to develop products or services that are able to cater to those gaps.
For instance, your competitors may be offering products that are based on seasons. This means that there are some seasons when your competitors may not really make so many sales. This is a gap and a market opportunity.
You can harness this gap by developing products that are not dependent on seasons, thereby increasing your market share and gaining ground in your industry.
4. Risk management
Risks are bound to happen in the course of a business journey. Although risks are not completely avoidable, you can choose to avoid the unnecessary ones.Going into a business with a foreknowledge of the abounding risks gives you an edge on how best to handle them when they come.
But when you go into a business without knowing what the risks are, the process will almost end badly. This is where you benefit from conducting a competitor analysis.
This helps you to know the intended risks your competitors will face or may be facing currently, and then know the strategies to put in place to avoid or mitigate such risks when they come.
The Disadvantages of a Competitor Analysis
Where there are advantages, there are also disadvantages, although this may not apply to every area of business, career, or life.But as advantageous as the competitor analysis is, it still has some underlying disadvantages. Let's take a look at three of them:
1. Overemphasis on your competition
Having knowledge of how your competitors operate is not out of place, but it can be when you begin to place so much emphasis on them. It may cause you to loose focus on the main thing—your business.By allowing your competitors to be the major thing on your to-do list, you'll loose focus on meeting the needs of your customers, harnessing technological innovations, market trends, emerging business opportunities, etc.
You can also become overreactive to every action your competitors take, thereby loosing focus on your own. This can affect your business in the long run and cause you to be worse than you were before conducting the analysis.
2. Resource intensiveness
The fact remains that gathering, conducting research, and analyzing competitors' data requires time, effort, commitment, and money. All these show that the whole process is cost-intensive, as it will require a lot of resources going into it.For instance, if you're a small business, the process may have strong negative effects on your business because funds for growth and investment will be diverted to the process.
While it's beneficial to know the strengths and weaknesses of your competitors, you must also be aware of their disadvantages.
So while you conduct competitor analyses, ensure they are done properly and efficiently so that they do not go to waste.
3. Risk of misinterpretation of information
Misinterpretation of information can be as bad as no information, or even worse. This is one of the disadvantages that you could have from a competitor analysis.Misinterpreting the information you have could yield a completely failed process, which could, in turn, affect the follow-up decisions you make.
If, while you conducted the analysis, there was missing or inconclusive information about your competitors, it could pose a serious challenge to the results of the analysis.
It could further lead you to develop strategies that will be ineffective, and in turn, you could loose opportunities by making misguided decisions.
Final Thoughts
Conducting a competitor analysis comes with a series of advantages and disadvantages, as do many other endeavors in business.By capitalizing on the advantages and seeking strategies to reduce the effects of the disadvantages, you will be making the most of the analysis.
By applying the knowledge you get from your competitors, you can make decisions that affect your business positively.
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Marketing