what factors determine the competitors included in a business plan

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How to Identify and Research Your Competition Emphasizing your competitive advantage is an essential part of any business plan.

By Eric Butow

Key Takeaways

Why competitive analysis matters
Questions to ask about your industry
How to find similar companies

Opinions expressed by Entrepreneur contributors are their own.

This is part 3 / 9 of Write Your Business Plan: Section 4: Marketing Your Business Plan series.

Successful entrepreneurs are renowned for intuitively feeling a market's pulse, project trends before anyone else detects them, and identifying needs that even customers are unaware of. After you are famous, perhaps you can claim a similar psychic connection to the market. But for now, you'll need to reinforce your claims to market insight by presenting solid research in your plan.

Market research aims to understand the reasons consumers will buy your product. It studies consumer behavior, specifically how cultural, societal, and personal factors influence that behavior. For instance, market research aiming to understand consumers who buy in-line skates might study the cultural importance of fitness, the societal acceptability of marketing directed toward children and teens, and the effect of personal influences such as age, occupation, and lifestyle in directing a skate purchase.

Related: 4 Effective Ways To Accomplish This Missing Step That Most Entrepreneurs Overlook

Market research is often split into two varieties: primary and secondary. Primary research studies customers directly, whereas secondary research studies information others have gathered about customers. Primary research might be telephone interviews or online polls with randomly selected target group members. You can also study your own sales records to gather primary research. Secondary research might come from reports on other organizations' websites or blogs about the industry.

Conducting market research provides answers to those unknown elements. It will greatly reduce risk as you start your business. It will help you understand your competitive position and the strengths and weaknesses of your competitors. And it will improve your marketing and sales process."

Related: You Need Consumer Insights To Ensure The Success Of Your Business. Here Are Five Ways To Find Them.

Questions to Ask About Your Industry

To start preparing your industry analysis and outlook, dig up the following facts about your field:

What is your total industry-wide sales volume? In dollars? In units?
What are the trends in sales volume within your industry?
Who are the major players and your key competitors? What are they like?
What does it take to compete? What are the barriers to entry?
What technological trends affect your industry?
What are the main modes of marketing?
How does government regulation affect the industry?
In what ways are changing consumer tastes affecting your industry?
What are recent demographic trends affecting the industry?
How sensitive is the industry to seasons and economic cycles?
What are key financial measures in your industry (average profit margins, sales commissions, etc.)?

Related: 5 Essential Elements of Your Industry Trends Plan

How to Find Similar Companies

Find a close match when looking at comparable businesses (and their data). For comparative purposes, consider:

Companies of relative size.
Companies serving the same geographic area could be global if you plan to be a web-based business.
Companies with a similar ownership structure. If you are two partners, look for businesses run by a couple of partners rather than an advisory board of twelve.
Relatively new companies. While you can learn from long-standing businesses, they may be successful today because of their twenty-five-year business history and reputation.

You will want to use the data you have gathered to determine how much business you could do and to figure out how you will fit into and adapt to the marketplace.

Related: How to Make Your Business Stand Out

How To Do Original Research

One limitation of in-house market information is that it may not include exactly what you're looking for. For instance, if you'd like to consider offering consumers financing for their purchases, it's hard to tell how they'd like it since you don't already offer it.

You can get around this limitation by conducting original research—interviewing customers who enter your store, for example, or counting cars that pass the intersection where you plan to open a new location—and combining it with existing data. Follow these steps to spending your market research dollars wisely:

Determine what you need to know about your market. The more focused the research, the more valuable it will be.

Prioritize the results of the first step. You can't research everything, so concentrate on the information that will give you the best (or quickest) payback.
Review less expensive research alternatives. Small Business Development Centers and the Small Business Administration can help you develop customer surveys. Your trade association will have good secondary research. Be creative.
Estimate the cost of performing the research yourself. Keep in mind that with the internet you should not have to spend a ton of money. If you're considering hiring a consultant or a researcher, remember this is your dream, these are your goals, and this is your business.
Don't pay for what you don't need.

Related: The One Simple Task That Will Help Your Startup Succeed

Owner of Butow Communications Group

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How to Write a Competitive Analysis: a Comprehensive Guide

September 4, 2024

Writing a competitive analysis is like mapping out the playing field of your business. It helps you see who you’re up against, what you’re doing well, and where you could do better.

Whether you’re just starting or looking for ways to grow, understanding your competition is crucial. Let’s dive into how you can get a clear picture of your competition, and how to use it in your business plan.

What is a Competitive Analysis?

A competitive analysis is a comprehensive evaluation designed to assess the competitive landscape in which a business operates. It involves identifying your main competitors and critically analyzing their strategies, strengths, weaknesses, products, services, and market positioning.

The purpose of this analysis is not only to understand who your competitors are but also to evaluate how they meet their customers’ needs and how your offerings compare.

Key Components:

Here are the key components we include in a competitive analysis:

Competitor Identification : Begins with identifying both direct competitors (those offering similar products or services) and indirect competitors (those offering alternative solutions to the same customer needs).
Product and Service Comparison : Involves comparing your products and services against those of your competitors to identify similarities, differences, advantages, and disadvantages.
Market Positioning : Examines how each competitor positions themselves in the market, including their marketing strategies , target audiences, and brand messaging.
Strengths and Weaknesses : Assesses the internal factors that contribute to competitors’ success or shortcomings, such as proprietary technology, brand reputation, financial resources, and operational efficiencies.
Opportunities and Threats : Identifies external factors that could represent opportunities or threats to your competitors, providing insights into potential market shifts, regulatory changes, technological advancements, and evolving customer preferences.
Customer Base Analysis : Looks at the type of customers your competitors are attracting, their loyalty programs, customer service strategies, and feedback channels.

Why Do We Conduct Competitive Analysis?

The primary purpose of a competitive analysis is to equip businesses with the knowledge to make strategic decisions that enhance their competitive advantage. It helps in:

Differentiation : Understanding what competitors offer allows a business to differentiate its products or services more effectively, highlighting unique features or benefits that address gaps in the market.
Strategy Development : Insights gained can inform strategic decisions around marketing, sales, product development, and customer service, ensuring they are tailored to outmaneuver competitors.
Anticipating Competitor Moves : By analyzing competitors’ strengths and weaknesses, businesses can better anticipate future moves, whether it’s a new product launch, market expansion, or pricing strategy .
Market Trends Identification : Keeps businesses informed about broader market trends and customer preferences, ensuring they remain relevant and responsive to market demands.
Risk Mitigation : Identifying threats in the competitive landscape allows businesses to develop contingency plans to address potential challenges proactively.

Why Do We Use a Competitive Analysis in a Business Plan?

We use a competitive analysis in a business plan for several key reasons:

Market Understanding : It helps to gain a deep understanding of the market dynamics, including how saturated the market is, what the competitors offer, and where there might be gaps in the market.
Strategic Positioning : By identifying your competitors’ strengths and weaknesses, you can better position your own business to compete effectively. It allows you to highlight what makes your business unique and attractive to potential customers.
Opportunity Identification : Competitive analysis can reveal market trends and shifts that present new opportunities for your business, whether through innovation, market expansion, or diversification.
Risk Management : Understanding the competitive landscape helps in anticipating potential threats and challenges your business might face, allowing you to develop strategies to mitigate these risks.
Investor Confidence : Including a competitive analysis in your business plan demonstrates to investors and stakeholders that you have a realistic grasp of your industry and are aware of the competitive challenges. It reassures them that you are prepared to navigate these challenges effectively.
Informed Decision Making : The insights gained from a competitive analysis can inform various aspects of your business strategy, from marketing and pricing to product development and customer service. This ensures that decisions are made based on a comprehensive understanding of the competitive environment.

How to Conduct a Competitive Analysis?

Preparing a competitive analysis involves several structured steps to ensure a comprehensive understanding of your competitive landscape. Here’s how to go about it:

1. Identify Your Competitors

Direct Competitors : These businesses offer the same products or services as you do to the same target market .
Indirect Competitors : These businesses offer different products or services that satisfy the same customer needs as yours.

Start with a broad list and then narrow it down to the most significant competitors for a detailed analysis.

2. Gather Information

Collect data on your identified competitors. Useful sources include:

Competitors’ websites and social media profiles
Customer reviews and feedback on platforms like Yelp, Google, or industry-specific forums
Industry reports and market analysis documents
Press releases and news articles

Look for information on their products, services, pricing, marketing strategies, target customers , market share, and any other relevant data.

3. Analyze Their Offerings

Compare your competitors’ products or services to your own. Consider:

The range of products or services offered
Quality and pricing
Unique features or benefits
Customer service and support
Branding and marketing strategies

4. Evaluate Their Strengths and Weaknesses

Based on the information gathered, assess each competitor’s strengths and weaknesses. Consider their operational efficiency, customer loyalty, market positioning, innovation capabilities, and financial stability.

5. Identify Opportunities and Threats

From your analysis, determine:

Opportunities : Areas where your competitors are not meeting customer needs effectively, market segments they are overlooking, or strategic alliances they haven’t formed.
Threats : Competitors’ strategies that could pose a challenge to your business, such as aggressive pricing, new product launches, or market expansion plans.

6. Assess Their Marketing Strategies

Look at how your competitors are marketing their products or services:

Which channels are they using? (e.g., social media, email marketing, SEO, PPC)
What key messages are they conveying?
How are they positioning their brand?

7. Summarize Your Findings

Create a detailed report summarizing your findings for each competitor, highlighting their key strengths, weaknesses, the opportunities they present to you, and the threats they pose.

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