Each year brings changes in the market, offering both opportunities and warning of imminent threats to brands. And each year, brands sink or swim depending on how they leverage their consumer and market knowledge.
This means you can’t afford to only mind your business and charge forward with your head down like a bull. Learn how to mind the other’s business like a pro with this detailed guide to competitive analysis.
What is a Competitive Analysis?
Competitive analysis is the comprehensive study of a competing brand to maintain a competitive footing. It can help you identify gaps in the market, develop better products, and reach your customer base more effectively.
Primarily, competitive analysis should help you gain more market share, meaning you have to take it from the competition.
Competitive analysis shouldn’t be confused with competitive market research, which studies the competitive landscape rather than focusing on a single competitor. This distinction is important to help you concentrate your efforts and conduct a thorough competitive analysis.
How to Conduct a Competitive Analysis
Performing a competitive analysis is a step-by-step process. To really understand a brand, you must dissect it and examine all the factors that have brought it to its current position. Hard enough for brands to do amid rapid changes and urgent needs, but to do it from the outside… that’s almost impossible.
However, if you understand the process, you can do it all year – as you should. We will take you through the process so that by the time you’re done reading this guide, you will be ready to conduct a competitive analysis more efficiently than most.
There’s a Market-Based View (MBV) economic theory that sees market conditions as the primary strength for competitive businesses. As marketers, we know that having market intelligence – e.g., about new businesses, patent applications, and developing partnerships – is crucial to maintaining a competitive edge.
The five market forces
From the MBV, there are five main factors that you should consider when studying your competitors. Brought together under the Porter’s Five Forces Model, the factors are industry competitiveness, barriers to entry, supplier power, customer power, and substitutes.
While the five forces framework was intended for competitive market research (analyzing the whole industry), its principles can still be used for competitive analysis.
In a highly competitive industry, individual companies have less power. It shows brands can undercut each other, and the workers, suppliers, and consumers have options. The vice versa is true. This implies that while you study your closest rival, you should also consider if there are others and how powerful/less that makes the rival.
Consider the search engine market. It is almost monopolized, making individual companies that much stronger or weaker. If Bing conducted a competitive analysis against Google today, it would quickly realize why the latter is hard to beat – it would take a miracle or a ChatGPT to even come close.
At the least, a company should have a solid understanding of the patents that are currently in play. And this insight should be regularly monitored as a category can quickly become saturated by new entrants. As we can see in the healthcare search referenced below, the patent dataset reveals important information, showing the kind of patents filed, where they originated and by whom:
Barriers to Entry
The likelihood of new entrants into the market also affects how you view the competitor you’re analyzing. If it costs little time and money or if there is an abundance of resources in the form of VC funding and unemployed talent, for instance, your rival is vulnerable to emerging competition.
Awareness of this helps you because if you can protect yourself against that threat, that’s two birds with one stone. Take two mobile app developers. The bar is really low for new entrants, which means that by establishing a loyal user base, Company A has protected itself from new developers and beaten Company B.
This implies the impact on the cost of production by the number of options the competitor has. If there are many suppliers in the market and the cost of switching between them is low, the rival can drive down the cost of inputs. On the contrary, if the suppliers have more power, the cost of production is high.
In a market with high supplier power, getting a better deal is the goal. If the supplier power is low, the quality of inputs matters more.
For instance, the top three cloud service providers serve 65 percent of the market. However, the supplier (provider) power in the market is relatively low as there are many other providers from notable brands, and 65 percent is relatively evenly spread among the big three – 34, 21, and 10 percent.
Being aware of your competitor’s provider can help you determine their competitive position:
- Are they able to reach consumers as far as you?
- Are they likely to experience more downtimes?
- Is it easy for them to switch to a better provider?
In this customer-centric era of business, the power of the customer is a given, but it must be analyzed more closely during competitive analysis. For instance, customers have more options today than ever, which is a significant reason they have so much power. However, this varies across industries, influencing company market share and competitiveness.
Also, acquiring new customers costs many times more than retaining them. This is the basis of developing a successful competitive strategy. The number of customers your competitor has, how significant each customer is, and the cost of adding new customers can tell you about their stability in the market and the weaknesses you can exploit.
The availability of substitutes threatens your competitor (and you, but we want to see things from their perspective). If there are no close substitutes to what the rival sells, they have more influence over the prices and terms. But you also have to factor in industry competitiveness and barriers to entry.
If you’re Pepsi doing a competitive analysis against Coca-Cola, a decrease in demand for the latter will not always translate to increased demand for your product. But being aware of the other beverages consumers buy can inspire you to develop more competitive products, e.g., new flavors that mimic the substitutes – coconut water, lemonade, sparkling water, etc. Or when a tech company explores emerging trends conversation, as seen below:
Understanding Porter’s Five Forces Model and applying them can improve your competitive analysis and help you develop better strategies.
Identifying Emerging Trends to Win Influence in a Market
Your rival might have been a first mover in the market with unique technology that allowed it to build great products, which helped it acquire a customer base that has stayed loyal. And they gained this edge by discovering an emerging trend ahead of everyone else.
This is valuable, as it can be organized to give the rival a lead for years.
For instance, if you’re making gadgets to compete with Apple, you must know from the outset that the brand’s customer base is out of your reach: Your gadgets are automatically incompatible with existing Apple products. A typical iPhone user has an easy choice between buying your new and improved wireless headphones and getting the AirPods that easily go with their phone and computer.
Valuing and Monitoring Brand Loyalty & Reputation
If you know why customers are loyal to your competitor, getting them on your side may be possible by offering better prices or experience, for instance. The same goes for employee loyalty.
On the other hand, brand reputation can only be damaged but not transferable. Similarly, intellectual property can be stolen, but the company culture that fosters innovation can only be imitated, not moved.
Competitive analysis recognizes this but allows you to take advantage during moments of weakness, such as converting customers during a crisis; or acquiring top talent when people quit, are fired, or when the company is facing financial hurdles.
So, how do you proceed?
Steps for a Competitive Analysis
1. Identify the target competitor
At this point, you know that direct competitors sell a similar product to yours to the same customers, and indirect competitors sell products that could be used in place of your own (substitutes). You also know that with the increased connectivity over the internet, your competitors could be as thorough right next door as they could halfway around the world.
Now you need to know why you’re conducting competitive analysis on that particular business and not any other in the market. It could be a new business that’s gaining traction with a segment of your market. It could also be an old formidable rival, and it’s your turn to one-up it.
It’s not paranoid to think that your competitor could even be a product in development or a patent applicant. Research by SCIP shows that many of today’s top organizations will be driven out of business by competitors that don’t even exist yet.
That is why technology scouting is an important regular exercise to discover emerging competitors and form strategies for approaching impending changes. Attending industry events such as CES is another good way to discover targets for competitive analysis.
For example, below our bar chart shows which companies invested in various cosmetics, and it reveals what the specific niche areas were!
Beyond that, competitive analysis should be a regular exercise where you study a particular brand or select group of competitors to stay up to speed on not only what they’re buying, but how they’re selling!
2. Analyze the product and service delivery
The product is the key to understanding your competitor. Product analysis breaks down the product into many different aspects forcing you to ask questions about its components, features, functionality, cost, price, marketing, and customer.
You know it solves the same problem as yours. It’s probably priced differently from yours but within the same range. If it’s out of range, you want to know why. If it’s competitively priced, look at the features or components, i.e., the core functionality. Note anything you find interesting, including new or lacking features. A crosstab analysis of key qualities is helpful here:
Next, look at the marketing, specifically the branding of the product. How different companies brand their products can make a big difference in the success of direct competitors.
Apple’s Steve Jobs, in trying to get consumers to buy into the iPhone, said, “When you get a message, it will push it right out to the phone for you. Same as a BlackBerry.” But while its success is based on more than its branding, the iPhone was branded as something beyond a gadget to make calls and send messages – better than one of the best phones at the time.
Finally, explore the company’s customer journey from purchasing to using the product. This will help you understand the customer experience and get an idea of how satisfied they are with the brand before analyzing consumer data.
3. Analyze share of voice (SOV)
Share of voice – the proportion of audience conversation about the rival – is a great way to understand brand awareness and visibility. It used to be a measure of PPC advertising reach until marketers realized it could be used to measure overall online visibility.
Now it can be used to gauge how popular different brands are and dig deeper to know what the conversations are about. With continuous monitoring, upticks in the share of voice may draw attention to particular competitors, such as during a successful marketing campaign or a crisis.
As most consumer conversations happen on various online channels such as social media, forums, and review sites, AI-powered social listening is the best technique to analyze SOV. It reveals how much is being said about the brand, what is being said, and when the conversation happens.
Share of voice is calculated as a fraction of a brand’s conversation volume against the total volume and done for every metric, i.e., for mentions, it would be the brand’s mentions against total mentions. But the math isn’t necessary; your social listening and data analytics tool will do it automatically and provide neat visualizations of your competitive benchmarking for quick reference:
In understanding SOV, note how active the competitor is on social media. Examine its presence on various channels and the size of the audience across them. Notice if there is an active campaign and measure performance metrics such as keyword SOV, brand mentions, content reach, and audience engagement.
Also, analyze available customer conversations and reviews to know what customers get, what they desire, and what they expect.
Take note of other contributors to the competitor’s SOV, such as influencers, key opinion leaders, and special events. Visit other destinations connected with the company’s social media, including the website, mobile app, e-commerce store, and third parties.
4. Analyze Brand Passion and Sentiment
It’s one thing to know that consumers are talking about a brand and what they say. Brand sentiment tells you the hidden emotions behind the words used, while brand passion tells you how strongly consumers feel about the brand.
Natural language processing, an AI-based technology, calculates both indexes. Sentiment is calculated on a scale of negativity to positivity, with neutrality in-between. Some tools will have a scale of -1 to 0 to 1. A scale of -100 to 0 to 100 is preferred as it is much easier to read.
Brand passion is a measure of the brand’s strong positive emotions against the negative. You should have the two indexes on the same plot like this:
A scatterplot with brand passion and sentiment.
5. Analyze Recent Activity
Next, examine the recent moves made by the brand, including the launch of a new product, a patent application, an ongoing M&A, a hiring spree, a firing spree, the acquisition of a major customer, partnerships with influential people, and anything in-between.
Social listening from the previous steps might have uncovered this already. You can also find out from the mainstream media coverage of the brand. The best option is to do a deep scan of the competitor, including their own and their affiliates’ activities.
For this, you need a powerful market research tool or platform that can access the entire open web to discover some of these activities which may be hidden from sight.
6. Compile and Report Your Findings
Be sure to keep records of your competitive analysis. This can be shared with various individuals and groups in your organization as need arises. Additionally, you might need the report on a subsequent competitive analysis.
7. Stay Ahead of the Changes with Continuous Monitoring
Competitive analysis is not a once-and-done exercise. The market is changing, which means the brands are changing to adapt. You want to stay ahead of these changes by continuously monitoring that one competitor and the entire competitive landscape.
Create a discover-monitor loop to stay ahead of the competition.
As the leading AI-powered consumer and market intelligence platform, we offer a range of capabilities to help you handle at least 10 of the most pressing issues in business today, including brand health, trend analytics, crisis management, technology scouting, and competitive intelligence, among others.
And then our platform suite includes Rival IQ, the premier tool for social media competitive intelligence. You can track your competitors using their old activities and real-time data. Beyond that, NetBase Quid® allows you to integrate multiple research tools and control them from one powerful dashboard.
If you’d like to know how we can help you conduct competitive analysis more effectively, talk to your account manager or reach out for a demo today.