On the right side of the photo, a man in glasses and a black button-up shirt stands next to a white board covered with post-it notes. The man is speaking and gesturing to something on the board with one hand. To the left of him, several other people watch him and look at the board. In the background is a floor-to-ceiling glass wall, on which is mounted a flat screen TV. On the other side of the wall is an open warehouse or office space with cylindrical lights hanging from the ceiling.
Analyze both your direct competitors and your indirect ones. Indirect competitors are those who sell different products but meet the same customer needs that you do. — Getty Images/Nitat Termmee

At times when consumers are keeping a close eye on their discretionary spending, it’s useful to do a competitive analysis to see how you stack up in the market. A competitive analysis can help you refine your marketing, confirm your product pricing, and build brand loyalty with your customers. Here’s how to perform a competitive analysis to see how your business stacks up.

[Read more: 6 Steps to Performing a Competitive Analysis]

Create a list of your competitors

Start by identifying your direct and indirect competition. Your direct competition is businesses in your immediate area that offer similar products or services. A consumer might consider these companies as a direct substitute to your company.

Indirect competitors are those that offer products that are not the same as yours but could meet the same need that a consumer may have. For instance, Rent the Runway and Fabletics are two subscription-based clothing services, but they serve very different customers (one offers designer dresses and the other athleisure outfits).

In this step, create a shortlist of no more than 10 direct competitors. These businesses are targeting the same customer segments in the same geographic area with a very similar product or service.

Analyze the market

Next, start to gather information on your target customers. Analyze the market of potential buyers to understand what consumers want and need when they shop for your product or service. This step can be accomplished through primary and secondary research.

Primary market research includes interviewing your customers, sending surveys to your loyalty program, or hosting a focus group to understand better what problems your company can solve. You may even decide to purchase a competitor’s product or service to learn more about their customer experience.

Secondary market research includes reading market reports from industry experts, assessing consumer trends, and looking at competitor websites to identify trends that your company can tap into. Ultimately, the goal is to understand the customer experience. What is a customer seeking when they interact with your brand and its competitors?

Consider what your company does well, where you could improve, and what threats or opportunities are on the horizon based on your market research.

Evaluate the competition

With the customer’s needs in mind, you’ll want to dive deeper into your competitor shortlist. Pay attention to elements in your competition such as:

  • Differences in their products or services.
  • Marketing messages, content marketing, and sales tactics.
  • Pricing, discounts, and perks.
  • E-commerce options and website.
  • Shipping strategy (e.g., do they offer curbside pickup? What about free shipping?).

Try to evaluate each competitor objectively through the eyes of the target customer. How is shopping at each competitor pleasant, frustrating, or tedious? Reserve your judgment for the next step.

Perform a SWOT analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Conduct this analysis for your company. Consider what your company does well, where you could improve, and what threats or opportunities are on the horizon based on your market research. Assess the same elements you investigated during your competitor evaluation. Pricing, customer experience, shipping, marketing, and your website should all be under review.

Compare your results

Use the results of your SWOT analysis to see how your business stacks up to others in the market in the eyes of the consumer. Perhaps your pricing is slightly higher than your competitors — but the results of your focus group indicate that customers will pay a premium for quality. These insights can inform your next marketing campaign, for example.

In addition, use the market trends you’ve identified to see if your business is resilient to shifting consumer tastes. Maybe there are opportunities that your competition hasn’t yet capitalized on; what investments or changes can you make now that will come to fruition in a year or two? With a competitive analysis, you can iterate on the core value of your company and revise the areas in which you aren’t as strong.

[Read more: 6 Steps to Market Your Business in a Competitive Market]

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