Unveiling the power of competitive analysis: A comprehensive guide for small businesses

As a small business, one of the best ways you can attempt to gain an advantage over your competition is through competitor analysis. And in this guide, I’ll be covering how you can do just that for your small business. 

What is competitive analysis? 

For a more “standard” definition, competitive analysis is systematic examination and evaluation of strengths and weaknesses of current and potential competitors in your market or industry.   

Think of it this way:  It’s the art of snooping (legally, of course) on other businesses to see what they’re up to, all in the name of strategic planning. It’s like being a detective, but instead of solving a crime, you’re figuring out questions like why your competitor’s social media game is so strong.  

Why conduct a competitive analysis? 

In your competitor analysis detective work, not only can you figure out what your competitors are doing right, but most times, you can also figure out what they’re doing wrong.  Maybe that crazy good social media presence covers up for customer service as friendly as Grumpy Cat^®.  Perhaps competitors offer great deals, but their product quality is about as reliable as a cheap umbrella in a rainstorm. 

Conducting a competitor analysis can provide you valuable insights like: 

1. Identifying strengths and weaknesses: Your small business can identify the strengths and weaknesses of competitors. This information can help you understand where your small business stands in relation to competitors and identify areas where it needs to improve. 
2. Identifying opportunities: By studying competitors, small businesses can identify opportunities for growth and expansion, such as identifying gaps in the market you’re your business could fill, or new products or service offerings that could attract customers. 
3. Helping understand market trends: Understanding and being out in front of market trends and changes in consumer preferences can help your business stay ahead of the proverbial curve and allow you to adapt your strategies when needed. 
4. Benchmarking performance: Seeing strengths and weaknesses of your competitors can help you set realistic goals and targets and track their progress over time. 
5. Informing strategic decision-making: Understanding your competitors’ role(s) in the market can help you strategically plan, including decisions around pricing, marketing, product development, or expansion into new markets. 

When should you conduct a competitive analysis? 

Small businesses can flex those detective muscles and conduct competitor analyses nearly any time.  But here are some specific situations where your small business should consider conducting a competitor analysis: 

1. Entering a new market: Before entering a new market, conduct a competitor analysis to understand who the main competitors are, those competitors’ strengths and weaknesses, and potential ways your small business can differentiate itself in the market. 
2. Developing a marketing strategy: Identify gaps in the market which can be capitalized on, as well as potential roadblocks or threats to be aware of. 
3. Launch of a new product or service: Understanding what similar products or services already exist in the market, see how they are priced, and how they are marketed will help position your new offering more effectively. 
4. Looking to improve performance: Identify areas where you may be falling behind competitors and where to make improvements, whether in business operations, marketing strategies, or product offerings. 

Types of competitors 

Typically, you’ll come across three types of competitors as you conduct your competitor analysis:  direct, Indirect, and Replacement Competitors. 

Direct competitors

Direct competitors are businesses that offer the same products or services you do.  These competitors typically are the most like your business and are competing for the same customers and mindshare. 

Indirect competitors

Indirect competitors are businesses which offer different products or services but still compete for the same customer dollars. For example, a coffee shop may consider a juice bar as an indirect competitor because they both cater to people looking for a quick, delicious beverage option. 

Replacement competitors

Replacement competitors are businesses which offer alternative products or services that could potentially replace the need for your business. For example, a small bookstore may consider online retailers like Amazon as replacement competitors because customers may choose to buy books online instead of visiting the physical store. 

Step-by-step guide to conducting a competitive analysis

1. Identifying your competitors 

You can utilize a variety of options to identify potential competitors: 

• Research the market: Conduct market research to identify other companies offering similar products in the same industry or niche. 
• Attend industry events: Attend trade shows, conferences, and networking events to meet other small business owners in the same industry. 
• Online search: Use your preferred search engine to look for businesses offering similar products or services in the same target market or location where your small business is. 
• Social media monitoring: Monitor social media channels to see who else is active and engaging with potential customers.  We will discuss this more as we talk about monitoring competitor marketing later in the article.  
• Industry directories: Look for industry-specific directories or listings to identify businesses in the same niche or with a similar offering. 
• Conduct a SWOT analysis: Identify Strengths, Weaknesses, Opportunities, and Threats to your business, which can also help identify competitors in the market.  We’ll talk more on this in a little bit.   

2. Creating a competitor matrix 

After identifying competitors, using a competitor matrix can help analyze and compare competitors to help identify strengths and weaknesses relative to your small business.  Here’s a sample of steps on how you can create a competitor matrix: 

1. Gather information:  Collect data on each competitor, including:  

• products or services  
• pricing 
• market share 
• target customers 
• marketing strategies 
• distribution channels 
• strengths, and weaknesses  

You can gather this information through online research, industry reports, customer feedback, and even by visiting their stores or websites. 

2. Define criteria: Decide on the key criteria you want to evaluate your competitors on, such as product quality, pricing, customer service, brand reputation, innovation, or market presence. 
3. Creating a matrix: To create a matrix, you can easily open a spreadsheet on your PC, list your competitors along the top row and list the key criteria along the side. Use a rating scale, such as 1 to 5, to score each competitor on each criterion. This will help you visualize how each competitor stacks up against your business in different areas. 
4. Analyze the results: Once you’ve filled in the matrix, analyze the results to identify patterns and trends. Look for areas where your business is strong compared to competitors, as well as areas where you may be behind. This helps you identify opportunities for improvement and areas where you can differentiate your business from competitors. 
5. Take action: Use those insights to develop strategies to capitalize on your strengths and address your weaknesses. This could involve examples such as adjusting your pricing, improving your product quality, enhancing your marketing efforts, or targeting new customer segments. 

Take note:  Creating a competitor matrix isn’t a one-time exercise.  By first creating, then regularly updating, a competitor matrix it helps you stay informed about the competitive landscape for your small business.

3. Gathering background information 

A good place to start your background information research is visiting your competitors' websites. Try to understand their business model, products or services, and their unique selling proposition. Look at their "About Us" page for clues about their company values and mission. 

Take a look at their social media platforms, as they can give you insights into how they communicate with their customers. Observe the tone of their posts, the frequency of their updates, and the type of content they share. Do they get a lot of customer engagement? What do their customers say about them in the comments?

Customer reviews are another great source of information. Websites like Yelp, Google Reviews, and Trustpilot can offer invaluable insights about your competitors' strengths and weaknesses, from the perspective of their customers. 

Don't forget to examine their marketing strategies as well. Look out for online ads, email newsletters, billboards, or TV commercials. What are their key messages? Who are they targeting? 

4. Profile your competitor’s target customers 

It’s important to profile your competitor’s target market or ideal customer.  By combining data on demographics, psychographics, behavior patterns, needs, and purchasing habits, you can create detailed customer profiles of a competitor's target audience to help tailor marketing strategies, products, and services to better meet the needs and preferences of these potential customers.  Here’s a brief explanation of each of the data categories: 

• Demographics: Factors such as age, gender, income level, education level, occupation, marital status, and geographic location. This information can be obtained through market research, customer surveys, and analyzing publicly available data. 
• Psychographics: Analyzing their lifestyle, interests, values, attitudes, personality traits, and behavior. This can be done through social media analysis, online forums, customer reviews, and qualitative research methods such as interviews and focus groups. 
• Behavior patterns: Observing their purchasing habits, brand loyalty, online activities, social media interactions, and response to marketing campaigns. This data can be collected through website analytics, social media monitoring tools, and customer feedback. 
• Needs: Small businesses can conduct customer surveys, interviews, and focus groups to gather insights into their preferences, pain points, motivations, and purchase drivers. Analyzing customer reviews, feedback, and complaints can also provide valuable information about their needs and expectations. 
• Purchasing habits: Tracking buying frequency, average order value, preferred payment methods, shopping channels, and product preferences. This data can be obtained through sales data analysis, customer relationship management (CRM) systems, and loyalty program insights. 

5. Focus on the 4 P’s 

The 4 P's of small business are essential components of a marketing strategy to help you effectively reach your target market and drive sales.  

Product

This refers to the actual goods or services you offer to customers. It is important for small businesses to have a clear understanding of their product or service and how it meets the needs and wants of their target market - including factors such as the quality, features, and benefits of the product. 

Price

Pricing is a crucial element, as it directly impacts on the profitability of your business. Consider factors such as the cost of production, competition, and consumer demand when setting prices for products or services. Pricing strategies you could use include cost-plus pricing, value-based pricing, and competitive pricing. 

Promotion 

Promotion is the activities you can engage in to communicate the value of products or services to customers and persuade them to make a purchase. This includes advertising, public relations, sales promotions, and personal selling. 

Place

Place, also known as distribution, refers to channels through which a business delivers its products or services to customers. Consider factors such as location, online presence, and partnerships with retailers when determining the best distribution strategy for your products or services. This includes determining how to make products accessible to customers and ensuring a seamless purchasing experience.  

6. Analyze strengths and weaknesses 

Next, it’s important to get a clear picture of your competitor's strengths and weaknesses. It's not about finding flaws to exploit, but rather understanding where your business stands in comparison. 

First things first, let's talk about strengths. These are the areas where your competitors shine. It could be their unique selling proposition (USP), excellent customer service, or innovative product features. Spend some time researching and jotting down what makes them stand out in the market. This can include scouring their website, social media pages, customer reviews, and even doing a little bit of secret shopping. 

While assessing their strengths, ask yourself: What are they doing right? What do their customers praise them for? How are they establishing their brand? 

Now, let's move on to weaknesses. These are areas where your competitors might be falling short. Maybe their pricing is too high or their customer service isn't up to par. Identifying these weak points can help you find opportunities to excel where they're lacking. 

As you investigate their weaknesses, consider: Where are they missing the mark? What do their customers complain about? What aspects of their business could use improvement?

The goal isn't to gloat over their weak spots, but to learn and improve your own business. By understanding your competitor's strengths and weaknesses, you'll gain a clearer perspective on your own business's position in the industry.

7. Evaluating competitor marketing strategies 

Analyzing your competitor’s marketing strategies requires a combination of research, observation, and data analysis.  While that sounds daunting, don’t let that scare you away.   

8. Analyzing marketing channels 

Analyzing a competitor’s marketing channels can provide you with valuable insights:  

• Social media monitoring: Track the type of content your competitors are posting, their engagement levels, and the platforms they are using. 
• Website analysis: Analyzing a competitor's website can provide information on their SEO strategy, content marketing efforts, and overall online presence. Your small business can look at the keywords they are targeting, the layout and design of their website, and the quality of their content. 
• Email marketing analysis: If your competitor offers an email newsletter, consider subscribing to it.  It gives you an easy way to see the frequency of their emails, the type of content they are sending, and the calls to action they are using. 
• Customer feedback: Analyzing customer reviews and feedback about your competitors can shine a light on areas where your competitors may be coming up short, where your business can differentiate itself, and help you to improve your marketing strategies. 
• Market research: This can help you understand your competitor’s target audience, messaging, and pricing strategies -giving you a chance to refine your own marketing channels and better position yourself in the market. 
• Attend industry events: As we mentioned above, attending industry events and conferences can provide the opportunity to observe competitors in action and learn about their marketing strategies firsthand. These events can also help you network with industry experts and gain insights into emerging trends and best practices. 

9. Identifying your strengths, weaknesses, opportunities and threats

As I mentioned earlier in the article, conducting a SWOT analysis is one of the ways to take stock of your small business and where it stands in your market, and it can help you identify competitors. 

As you may know, conducting a SWOT analysis requires you to look both internally and externally, taking time to think on the following: 

Strengths:  All the internal factors which give your business a competitive advantage.  This could include things like a strong brand reputation, loyal customer base, unique products or services, skilled employees, or efficient processes. 

Weaknesses:  Internal factors which may put your business at a disadvantage, such as limited financial resources, outdated technology, lack of marketing expertise, or high employee turnover. 

Opportunities:  External factors which could benefit your business, like new customer segments, emerging trends in your market, a partnership or collaboration, or changes in local regulations. 

Threats:  External factors which could potentially harm your business, including economic downturns, changing consumer preferences, technological changes, increased competition, or, just like above, changes in local regulations. 

After your SWOT analysis, you’ll be able to better understand your business's market position. This will in turn help with planning, predicting challenges, and spotting new opportunities. The analysis can also help to highlight your strengths and weaknesses, enabling you to use them to your benefit and improve weaknesses. 

10. Tracking and monitoring results

Once the factors have been identified, you can analyze and prioritize them based on their likelihood of occurrence and their potential impact.  This will help you focus on the most critical issues and develop strategies to attempt to address them.  This can include setting measurable goals, implementing some key performance indicators (KPIs), seeking feedback from employees, customers, and other stakeholders.  To effectively utilize your SWOT analysis, you must being willing to adjust your strategy based on these factors as needed. 

How to use competitive analysis tools

Competitive analysis doesn’t have to be done manually.   

Competitive analysis tools like Ahrefs and SimilarWeb can be incredibly valuable for small businesses looking to understand their competitive landscape and make informed decisions about their online presence. Here are some ways a small business can effectively use these tools: 

1. Identify/confirm top competitors: Use these tools to identify (or confirm) who your main competitors are in your industry. Look at their websites, keywords they are ranking for, and their overall online presence to get a better understanding of where you stand in comparison. 
2. Analyze keywords: The keyword analysis feature can help you see what keywords your competitors are ranking for, and which ones may be driving the most traffic to their websites. This can help you identify opportunities to target similar keywords and improve your own search engine rankings. 
3. Track backlinks: Backlinks are an important factor in SEO and can greatly impact your search engine rankings. Use these tools to see where your competitors are getting their backlinks from and identify potential opportunities for your own link building efforts. 
4. Analyze traffic sources: Use SimilarWeb to see where your competitors are getting their website traffic from - whether it's from search engines, social media, or referral traffic. This can help you identify areas where you may be falling behind and could adjust to improve your traffic sources. 
5. Monitor trends: Use these tools to monitor trends in your industry and keep an eye on what your competitors are doing. This can help you stay ahead of the curve and make informed decisions about your marketing strategies. 

Deep dive into analyzing competitors’ digital strategy 

SEO analysis

Using a tool like Ahrefs can help you identify websites ranking for the same keywords as your business, and to help you analyze other keywords those sites are ranking for.  This can help you identify gaps in your own keyword strategy.  The tools can also help analyze backlink profiles of your competitors. 

You can also analyze On-Page SEO (optimizing individual web pages to rank higher in search engine results) to help identify where you might be able to improve. 

PPC/Keyword performance

Pay-Per-Click (PPC) advertising allows small businesses to target specific audiences based on their search queries and interests.  By optimizing these keywords and monitoring performance, you can ensure your ads are reaching the right audience, and hopefully leading to higher conversion rates and ROI. 

Monitoring keyword performance and adjusting bids accordingly can help you maximize your budget for your PPC campaigns, to get the most out of your advertising spend.  It also can increase your visibility in search engine results pages (SERPs) and reach potential customers actively searching for your products or services.   

Social media performance 

By studying a competitor's social media presence, you can uncover successful strategies and tactics which resonate with their audience, which can help inform your own content creation and posting schedule. 

Comparing a competitor's social media metrics - engagement rates, follower growth, and reach, can also help you understand how your small business stacks up against the competition and provide a benchmark for setting goals and tracking progress.   

It can also help you identify areas for differentiation or areas of opportunity your competitors may be missing out on – which can help your small business stand out in a crowded market. 

Email marketing 

There are several ways which you can monitor competitor email marketing efforts: 

• Sign up for their emails: One of the simplest ways to monitor a competitor's email marketing is to sign up for their email list. By doing this, you can receive their marketing emails and see what kind of content, promotions, and messaging they are using. 
• Use email tracking tools: There are various email tracking tools available that can help monitor a competitor's email marketing campaigns. These tools can provide insights into the competitor's email open rates, click-through rates, and engagement metrics. 
• Analyze their email content: Take the time to analyze the content of your competitor's emails. Look at the subject lines, copy, images, and calls to action they are using. This can give you valuable insights into their messaging and strategy. 
• Monitor their frequency: Pay attention to how often your competitors are sending out marketing emails. Are they sending emails daily, weekly, or monthly? By monitoring their frequency, you can get a better idea of their overall email marketing strategy. 
• Keep an eye on their promotions: Take note of any promotions, discounts, or special offers that your competitors are promoting through email. This can give you insights into their pricing strategy and help you stay competitive in the market. 

Essential Do’s and Don’ts in competitive analysis 

Pitfalls to avoid in competitive analysis 

Beware of the pitfalls of competitor analysis - getting too caught up in what competitors are doing can lead to imitation rather than innovation. Remember, you’re not trying to be a carbon copy of your competitors; you’re trying to stand out in a proverbial sea of sameness. So, use competitor analysis as a tool for inspiration, not replication. 

Best practices in competitive analysis

Now, when it comes to best practices for competitor analysis, remember to keep it legal - no hacking into your competition’s databases or stalking their owner on social media. Instead, focus on gathering information through market research, customer feedback, and good old-fashioned observation. And don’t forget to analyze their strengths and weaknesses to identify areas where you can outshine them. 

How competitive analysis can propel your business growth 

Competitor analysis is a crucial component of a small business’ growth strategy, helping you: 

Set benchmarks for future growth 

• By benchmarking against competitors, businesses can set performance goals and track their progress over time.  This helps identify areas of improvement and helps establish realistic growth targets. 
• By finding valuable insights into competitors’ strategies, strengths and weaknesses, a small business can more effectively develop their own strategic plans and allocate resources efficiently. 

Spot industry trends 

• Identifying gaps in the market or spotting emerging trends your competitors may have overlooked.  By staying ahead of trends, you can position yourself as a leader in that market. 
• Staying informed about new technologies or tools being used in your industry.  By adopting new/innovative technologies early on, not only might you be able to enhance your customers’ experiences, but you can also potentially streamline your operations as well. 

Understand your market 

• Identify where you stand in your market in relation to your competitors.  This can help you understand the unique value proposition and competitive advantages you have which can be leveraged to attract customers. 
• Gaining insights into your target audience’s preferences, behaviors, and needs.  You can use this information to tailor marketing strategies and product offerings to better meet your customer demands. 

Conclusion

Competitor analysis sounds extremely daunting, but when you break it down into manageable pieces, it’s a great way for you to potentially help further your understanding of not only your business, but your market(s) by: 

• Identifying competitors 
• Analyzing your weaknesses and strengths 
• Analyzing your competitors’ weaknesses and strengths 
• Evaluating Competitor Marketing Strategies 

So, grab your magnifying glass (or more realistically, your laptop) and channel your inner detective by conducting a competitor analysis!  Happy sleuthing! 

FAQ

Is competitive analysis the same as SWOT analysis?

No, competitive analysis is not the same as SWOT analysis. Competitive analysis focuses on understanding your competitors. It's about diving deep into what your competitors are doing so you can find ways to outperform them. SWOT analysis is a strategic planning tool to help organizations identify internal and external factors that may impact their performance. 

While both analyses can offer valuable insights, they serve different purposes. Competitive analysis helps you stay one step ahead of your rivals, while SWOT analysis helps you understand your own business better. Combining these two approaches can give your small business a powerful strategic advantage.

What are the objectives of competitor analysis?  

The first objective of competitor analysis is to help you better understand your competition. This involves identifying who they are, what they do, and how they do it. Knowing this can give you a clearer picture of the market landscape.

Second, competitor analysis can help you identify opportunities and threats. You can spot trends, see what's working for other businesses, and use this information to inform your own strategies. Additionally, by identifying the threats posed by your competitors, you can prepare and strategize effectively to mitigate these risks.

And third, competitor analysis aims to provide a basis for crafting your unique value proposition to help you stand out from the competition.

What are the 5 parts of a competitive analysis?  

The five main parts of a competitive analysis are as follows:

1. Identifying competitors: This is the initial step where you outline who your direct and indirect competitors are. These could be businesses offering similar products or services in your area or online.
2. Analysis of competitors’ products/services: For this step, you need to closely examine what your competitors are offering. Look at their pricing, quality, customer service, and any unique features they might have.
3. Market positioning: Here, you study how your competitors position themselves in the market. What's their branding strategy? How do they communicate their value to customers? This will give you insights into potential gaps in the market that your business can fill.
4. Competitors’ strategies and objectives: Try to understand your competitors' business strategies and goals. Are they aiming for rapid expansion, or maybe they're focusing on customer retention? Knowing their objectives can help you predict their future moves.
5. Strengths and weaknesses analysis: Lastly, identify your competitors' strong points and where they fall short. This knowledge can help you leverage your own strengths and improve areas where your business might be lacking.

Is SWOT analysis a competitive analysis?  

Not entirely. SWOT analysis is a technique that allows businesses to assess their position in the market by examining both internal and external factors. While this process includes looking at your own business's strengths and weaknesses, it also involves identifying the opportunities and threats existing in the market, which often come from competitors. So, in essence, while SWOT is broader, it does include competitive analysis within its framework.

How do you write a competitive analysis?  

First, you need to identify your key competitors. These can be businesses that offer similar products or services, are of a similar size, or operate in the same geographic location. 

Next, you'll want to analyze these competitors. Look at their strengths and weaknesses. This can include anything from their marketing strategies to their customer service. 

Then, make a comparison between your business and your competitors. This will help you understand where you stand in the marketplace. 

Finally, use this analysis to make strategic decisions for your business. You can use your competitors' weaknesses as opportunities for your business, and their strengths as benchmarks for your own performance.