Why Make a Competitor Analysis?


In starting a small business, particularly if you’re investing in a franchise system, it’s important that you know as much as possible about your competitors. According to the Reference for Small Business, a competitive analysis is “the practice of analyzing the competitive environment in which your business operates (or wishes to operate), including strengths and weaknesses of the businesses with which you compete, strengths and weaknesses of your own company, demographics and desires of marketplace customers, strategies that can improve your position in the marketplace, impediments that prevent you from entering new markets, and barriers that you can erect to prevent others from eroding your own place in the market.”

Basically, a competitor analysis helps you understand where you stand, or rank, compared to your competition.

How to Make a Competitor Analysis:

  1. Identify competitors.
  2. Analyze your competitors’ strengths and weaknesses.
  3. Analyze your customers’ wants and needs.
  4. Build a strategy.

Identify Competitors

The first step to making a competitor analysis is to identify who your competitors are – current competitors as well as potential competitors. This step is easier said than done. When it comes to who you consider a competitor, there is a multitude of factors that come into play. If a business offers products/services that are incredibly similar to yours, that undoubtedly constitutes a competitor. But what about a business that offers only one or two products or services that compete with your company’s? Or a business that offers the same products/services but at a much lower or higher price point (Lexus versus Kia)? Look at the market from your customer’s point of view, and categorize these companies by how much they are vying for your customers’ dollars.

Analyze Your Competitors’ Strengths and Weaknesses

There are two key questions that get to the heart of analyzing your competitors’ strengths and weaknesses: What vital advantages does this competitor have when it comes to marketing, reputation, management, production, and other key business aspects? What are the same competitor’s main vulnerabilities in the same areas?

Analyze Your Customers’ Wants and Needs

Who are your customers? What do your customers do? Why do they buy? When do they buy? How do they buy? How much disposable income do they have? What makes them want to buy? What do they expect of you? What do they currently think of you? What do they think about your competition?

Build a Strategy

Once you have the information you need from making a competitor analysis, you can build a strategic plan that touches on all aspects of your business’ operations – from marketing and pricing to production and distribution