Competitor Analysis for Small Business: A Beginner’s Guide
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A good indicator of a small business’ health is how well you know your competitors. Can you list them? Do you know what their strengths and weaknesses are? Do you know what strategies they are using?
If the answer to the questions above is no, your business is likely to be in trouble sooner or later and you should take interventions immediately.
If you don’t know your competitors, it’s likely that you don’t know what’s going on in your market – trends in consumer preferences, new technologies being adopted, and opportunities emerging.
It’s also likely that you don’t know your customer, which means that you’ll have problems creating successful products and experiences and marketing them successfully because you’re trying to connect to everyone, which doesn’t work nearly as well as trying to connect to a specific subset of people.
Competitive analysis is integral to situational awareness, which is critical for business success and part of strategic management for small business.
Read on for a guide on how to do competitor analysis for a small business.
Step 1: Define the Target Area of Your Business
For your business to be successful, you must be aware of your target area and stick to it. Your business’ scope (or target area) is the geographical area in which you’ll be operating.
Assuming you run a hotel, your target area may be your immediate neighborhood (several kilometers around you in each direction). If you decide to take online orders and do home delivery, your target area will expand to cover a larger part of the city or town you’re located in.
Because of the internet, the target area for a small business could be the whole world. For example, if you offer logo design services, you could offer that service to individuals across the world.
The important thing is to weigh your options carefully and decide what focus area makes the best sense for you. Take time during the analysis stage and try to consider all relevant factors. Once you’ve defined your target area, stick to it unless there’s need for a strategic shift.
Step 2: Define The Target Market of Your Business
After defining the target area of your business, it’s important to decide who you’ll target your goods and services at. If you try to sell to everyone. you’re likely to have a difficult time and failure is almost guaranteed.
So, for example, if you run a hotel and you’ve decided to serve only the hotel’s neighboring area, you need to decide whether to focus on fast foods like chips or meals customized according to the customer’s order.
Again, proper analysis is needed before making this decision. Once you decide on your target market, stick to it. It will determine the right pricing, the right marketing, and the right products to offer.
It will also determine who you’re in direct competition with.
Step 3: List Your Competitors
By this point, you know the geographic area you serve and you’ve narrowed down to a specific customer. All you need to do is figure out who else is serving the same target customer in the same geographic area.
These are your competitors. You need to identify and list them exhaustively.
Step 4: Analyze Your Competitors
For the competitive analysis process to help your business, there’s a lot you need to find out about your competitors. The goal is to identify their weaknesses and your strengths and position yourself in a way that maximizes your strengths and minimizes the impact of your weaknesses.
To get the most out of competitive analysis for a small business, a competitive profile analysis can help.
Factor | Business 1 | Business 2 | Your Business |
Comparative product uniqueness | |||
Comparative product quality | |||
Price | |||
Service | |||
Convenience or availability | |||
Reputation/Image | |||
Location | |||
Advertising strategy & effectiveness | |||
Product design | |||
Quality of staff | |||
Cost of raw materials | |||
Financial condition | |||
Production capacity | |||
Research & development position | |||
Variety |
You don’t have to do a comprehensive analysis on all the factors, but it helps to consider each of them for your business and for key competitors.
This analysis gives managers awareness on where their businesses stand compared to competitors, which allows to become aware of threats and opportunities and take relevant action.
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