For your small business succeed, you need to know almost as much about your competitors on your business and your customers. Unfortunately, many small business owners make the mistake of waiting until a competitor has opened a store across the street and make a notch in profits to wonder who he is and assess the competition.

A competitive analysis allows you to identify your competitors and evaluate their strengths and weaknesses. By knowing the actions of your competitors, you will have a better understanding of the products or services you should offer, how you can market them effectively, and how to position your business.

The competitive analysis is an ongoing process. You should always be in the process of gathering information about your competitors. Check their websites. Read the documentation and brochures on their products. Put your hand on their products. See how they present themselves at trade shows. Read what is said about them in the magazines industry. Talk to your customers to see how they feel about products or services of competitors.
Click on the steps below to learn more about how to analyze your competitors:

Step 1: Identify your competition
Step 2: Analyze strengths and weaknesses
Step 3: Look at opportunities and threats
Step 4: Determine your position

Step 1: Identify your competition

Every business has competitors and you must take time to discern who your customers can go to obtain a product or service that meets the same need as yours. Even if your product or service is truly innovative, you should see what your customers can purchase one for accomplishing this task. For example, it may be that you open a Web site offering bingo online. Your competition would be other Bingo sites, other Web gaming sites, the Bingo hall down the street and any business that competes for the same entertainment dollars.

Start by studying your major competitors. These are the heads of market leaders, companies that currently dominate your market. They are those against whom you will encounter in your search for new customers. If you’re a florist, it would be other florists in your area. If you’re a computer consultant, what would be other consultants with the same specialty.

Then, consider your secondary and indirect competitors. These are businesses that can not confront you directly, but targeting the same general market. Also in the florist, it may be a small local shop that only sells roses delivery service or national floral radius of plants and flowers of your supermarket or your discount store nearby.

Finally, look at potential competitors. These are the companies likely to enter your market and you should prepare yourself to compete. For example, if you have a separate kiosk that sells frozen yogurt, you should prepare yourself against the national franchises frozen yogurt, even if they are not yet in your market.

Step 2: Analyze strengths and weaknesses

Once you’ve figured out who your competitors are, determine their strengths and learn about their vulnerabilities. Why do customers buy their homes? Is it price, value, service, convenience, reputation? Focus on both the strengths and weaknesses “perceived” than real. For customer perception may actually be more important than reality.

It’s a good idea to make this analysis of strengths and weaknesses in tabular form. Enter the name of each of your competitors. Then set up columns listing every important category for your business (price, value, service, location, reputation, expertise, convenience, personnel, advertising and marketing, or anything else that is appropriate for your business). Once you have this table, write down your competitors and make sure to comment on why you’ve given them that rating. You might even want to put forces in red and weaknesses in blue so you can see at a glance where everyone is your competitor.
Step 3: Look at opportunities and threats

Strengths and weaknesses are factors that are often under the control of the company. But when you study your competition, you must also consider how it is prepared to respond to factors outside its control. This is the opportunities and threats.

Opportunities and threats fall into a wide range of categories. There may be technological developments, regulatory actions or lawsuits, economic factors or even a new potential competitor. For example, a trade photofinishing needs to know how its competitors are prepared to cope with the advent of digital photography. Or, a company that sells over the Web should analyze how its competitors are prepared to face the problems of online security.

Again, one effective way is to create a table listing your competitors and external factors that will impact your industry. You can then see how they can deal with opportunities and threats.

Step 4: Determine your position

Once you have determined what are the strengths and weaknesses of your competitors, you must determine where to position your company relative to competition. Part of this may seem obvious in light of your analysis, but it is also beneficial to examine closely the operation of your business.

The most effective way to achieve this is to analyze the strengths and weaknesses and opportunities and threats for your business. Organize your business as you did for your competitors. This will give you an even clearer picture of where your business in this competitive environment. This will also help you determine the points where you need improvement and what characteristics of your business you should emphasize in order to win new customers.

Conclusion: looking for ways to leverage your strengths and take advantage of the weaknesses of your competitors.

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