What Is a Competitive Analysis?

It's Time to Size Up the Competition

A competitive analysis relies on data and research to understand the strengths and weaknesses of a business’s competitors. Gaining an accurate picture of the marketplace is critical for building a sound business strategy and allows companies to allocate their sales and marketing resources for maximum effect.

The competitive analysis is an important part of any business plan, and it demonstrates that management has taken the time to consider the competitive forces in the market which could influence their success or failure. For this reason, many investors insist upon reviewing a competitive analysis before funding a venture.
 

Competitive Analysis and Big Data

Technology has proven extremely valuable for the competitive analysis process, allowing companies to quickly assemble the latest insights into their competitors. Advances in big data – including data collection, integration, and validation – have resulted in unprecedented insight into the health of other businesses and the industry as a whole.

There are a variety of enterprise-level business research tools available to help companies with the competitive analysis process. For example, the Business Directory maintains a comprehensive company database that collects verified information on financial performance, mergers and acquisitions, key staff, business credit scores and ratings, and legal judgements and liens. All of this information is valuable when learning about a competitor.

In the not-so-distant past, uncovering such data would have been a manual process involving hours spent reviewing public documents and news coverage. The rapid acceptance of big data in the business world has resulted in a competitive analysis process that is less time-consuming and more comprehensive than past efforts.
 

Key Elements of a Competitive Analysis

A competitive analysis should include any information about competing businesses with implications for your own company. We can narrow this statement down by considering the major questions every competitive analysis seeks to answer:

1. Who are my competitors? Local competition likely poses the biggest threat, but larger businesses must also consider regional or national competitors.
2. How financially stable is the competition? For publicly traded companies, you can consult quarterly earnings reports and various disclosures. Private companies do not have to share earnings details with the public, but business information tools can reveal business credit scores and ratings, trade references, and legal judgements or liens. This information can paint a picture of the overall financial health of a firm.
3. Are my competitors growing? Tracking the number of brick-and-mortar locations or areas served can help you understand if other businesses are experiencing growth.
4. What strengths do my competitors enjoy? This can cover anything from more competitive pricing to a corporate parent flush with cash. Either way, you need to understand where the competition holds an advantage.
5. What are my competitors’ weaknesses? Missed payments to suppliers can indicate financial trouble. High turnover may suggest internal turmoil. Uncovering where the competition is struggling can reveal opportunities for your company.
    

Competitive Analysis Resources

The role of big data and technology in competitive analysis has already been noted. Here are the various resources that businesses can consult when performing a competitive analysis:

1. Business information databases: Companies such as Dun & Bradstreet collect a wide variety of business information, including financial details, executive rosters, and business credit scores and ratings. These marketing and sales products can often be accessed by business owners via a subscription or a la carte purchase.
2. Company websites: Most companies will only share good news on their websites and social media profiles. This can help you gauge growth. However, you may also be able to spot weaknesses, such as when a product line is discontinued or the number of locations listed shrinks.
3. Media reports: The business section of your local newspaper can be a good source of information about other businesses in the area. You may even learn of potential competitors that hadn’t been considered.
4. Word of mouth: You may share customers or suppliers with your competitors. Keep your ear to the ground so that you don’t miss potentially valuable information that’s shared.

Building a competitive analysis requires accurate data and a strong intuition about your business. The resources available to help businesses with this process is greater than ever before – be sure to take advantage of them.