Have you ever felt you were really, really good at something, then found yourself totally outpaced by someone who was way better? Whether we’re talking sports, school, business or who makes the best apple pie at Thanksgiving, all of us have, at one point, been left in the dust.
Realizing you aren’t competitive in a certain field can sting, but it can also be a useful learning opportunity. In fact, knowing how well competitors perform is key to your own victory. This is especially true for business where your competitor’s standing is almost as important as your own. But, how do you determine this?
You need to perform an industry analysis. Let’s get started.
What is an industry analysis?
In short, an industry analysis is a market analysis that looks at how your company compares to others in your niche. Going beyond standard market research, an industry analysis takes a deep dive on every aspect of your company and how it stacks up to others. This could mean comparing how your company pays employees to how competitors pay, how your return on investment (ROI) compares to others, if your new products are competitive with others on the market and so on.
You might think you can simply read available industry research. While this is true, an industry can change overnight, meaning a report you read a week ago can already be old news.
Whether you’re entering an industry for the first time or looking for ways to take your business to the next level, it’s important to conduct regular industry analyses to get the most relevant information. Essentially, an industry analysis is meant to help you review market and financial factors in your industry and track your competition.
The beauty of industry analyses is they’re useful in fields ranging from manufacturing to retail, and involve multiple factors including geographical area, industry outlook, regulatory environment and target market. Even better, an industry analysis is relevant for small businesses and large corporations. By investigating and analyzing your competitors, you can determine the best strategies for achieving business success.
Gathering data for an industry analysis
There are two principal methods businesses can use to conduct an industry analysis. The first is a quantitative analysis, which involves the use of mathematical forecasting to assess data. The second is a qualitative analysis, which requires owners to use their own judgment when reviewing information. Once you’ve assessed your competitors’ strengths and weaknesses, you can identify and implement strategies to boost your market share.
Here are the steps needed to conduct a thorough industry analysis:
1. Get ready
Detailed research is the first step in an industry analysis. Generally, businesses have the option of either hiring an outside firm to gather data or performing their own research. Fortunately, a great deal of competitor research can be accessed easily if you know where to look.
If you decide to do it yourself, start by compiling a list of your competitors. Next, determine the questions you want to answer during your analysis. Some of the most common questions may include:
- What products and services do my competitors offer?
- Do my competitors target the same markets and audiences I do?
- Are my competitors making money?
- How fast are my competitors growing?
Businesses should assess where their competitors rank on factors like customer service, quality of goods and prices. The goal is to eventually determine how you can compete with corporate giants while achieving the desired profits.
2. Examine your competitors
Once you’ve determined the goals of your analysis, it’s time to collect data. While you can gather a great deal of valuable information from secondary sources like journal articles and marketing reports, don’t overlook less obvious references, such as competitor advertisements and product brochures. These documents can offer useful insight into competitors’ pricing, along with their advertising budgets and most marketable product features.
Additionally, take time to review your competitors’ financial data and cash flow. Feel free to visit competitors with brick-and-mortar locations. While you should refrain from dishonest info-gathering tactics, asking other business owners questions as though you were a client is a widely accepted practice for conducting an industry analysis. You can also observe product placement within the store and even purchase a few items to see how they stack up against your own.
3. Analyzing competitive data
After collecting competitor data from various sources, you can begin analyzing it to form conclusions. The goal is to determine your competitors’ strengths and weaknesses, while evaluating how your own business stacks up.
A key part of the analysis step involves assessing and testing a physical product or service itself. Begin by listing the top features of your various products or services. Next, note whether your competitors offer those features. Pay close attention to the products or services your target audience sees as most important. Additionally, you should note how well those features work and whether customers feel that these benefits meet their current needs.
Are there things you’re offering that are better than the competition, or vice versa? This answer could help you offer a better product or service. Stay abreast of your customers’ good and bad points, and look for places where your business can shine.
4. Evaluating your position
Evaluating competitors’ strengths and weaknesses via SWOT analysis also enables you to identify your own place in the market. (More on SWOT in the next section.) Along with pinpointing advantages your company has over the competition, you can identify future problems and adjust strategies accordingly before the problems become crises.
For example, you may need to revise prices, add features or explore different markets for your goods to stay ahead. The goal is to align your industry analysis with a demographic study of your target customers, so you can make the most educated decisions moving forward.
You can’t plan for your company’s future effectively until you determine how you stack up to your competition. A thorough industry analysis is crucial to achieving success in the business world. By assessing your competitors, you can identify market niches and figure out just what your target customers desire.
Common industry research and analysis models
If you follow the above steps, you’ll wind up with a boatload of useful data and an idea of how your company is doing. The previous steps are a general framework. Now, it’s time to take your information even farther using a tried-and-true industry analysis model. There are a couple of popular ones, each taking a different approach to industry analysis.
A SWOT analysis is one of the more popular analysis models. SWOT, which stands for strength, weakness, opportunities and threats, looks specifically at your company’s internal strengths and weaknesses, as well as external forces that could threaten your business.
A SWOT analysis won’t focus on how your company is doing compared to others necessarily, but will give you a great idea of how you can improve, what your competitors are doing well or poorly, and how you can play on your strengths even further. It’s also a great way to prepare yourself for potential threats. What’s more, a SWOT analysis only takes a few steps.
- Strengths: For this first step, simply list your strengths from internal and external points of view. Think about how your company is managing employees, if your workers are happy and so on. Then, think about the external, or customer, point-of-view. What do you think a customer would view as your strengths?
- Weaknesses: This part can sting, but it’s time to list your internal and external weaknesses. Do you fumble with employee management, organization and so on? What kinds of weaknesses would your customers point out? If you have a review system for your products or services, this is a great time to view that feedback.
- Opportunities: For this step, look at your company and industry as a whole to spot opportunities available now or in the future. Do you see industry trends that play into your strengths? Is the current business environment one in which some of your strengths could be utilized? For example, if there are high barriers to entry in your industry and your competitors are all dropping the ball on a new technology, you might consider investing in that technology to see if your company can better utilize it in a new product.
- Threats: It’s time to look at what kind of threats you face, both internally and externally, via your competitors. For internal purposes, you could look for things like a sudden turnover or the impending departure of a specialist or high-ranking team member. External threats can be anything from new competitors to a sudden downturn in your particular industry. You also want to look for similar products entering your industry, as these can result in people leaving your products behind.
If you feel your business beginning to stagnate or even experience a downturn, a SWOT analysis can be an especially powerful tool for combating this. Every specific industry has its own quirks and shifts, and a SWOT analysis is one of the few ways you can get a clear idea of what obstacles you potentially face within it.
Competitive forces model
This model, also known as Porter’s Five Forces, is one of the older and more famous industry analysis models. Developed by Michael Porter in 1980, the Competitive Forces Model tasks business owners with ignoring their competitor’s direct actions to instead look at what five forces could influence the market.
Unlike a SWOT analysis model, the Competitive Forces Model gives you an idea of outside forces that can be impacting your business. This is useful for big-picture thinking, and for developing a brand strategy. To perform an analysis using Porter’s Five Forces, examine the following:
- Competitive analysis and rivalry: First, you need to examine the competitive landscape for your market. Think about your market size, the number of competitors you have, how their businesses are doing and how their offerings compare to yours.
- Supplier influence and power: Look at market reports and see what kind of supplier availability is within your market or niche.If market data and your own experience both tell you supplies are scarce, you could be asked to pay more for supplies. If your industry market research leads you to believe suppliers are plentiful, you can bargain for lower prices.
- Buyer influence and power: At the other end of the spectrum is buyer power. If you’re in a market with few buyers, the buyer has more power and can negotiate you down. If a market full of buyers, you’ll want to think about how easily someone could go to another competitor to buy their services.
- The threat of substitutes: Every industry can be a victim to substitute goods or products over time. Look at the availability of substitute products or goods in your market, and determine if you feel this is an immediate threat. Ask yourself if someone could easily replicate your product or make it more cheaply. This will help you think of a new offering that can’t be as easily substituted.
- Threat of new competitors: For this step, use your personal experience and available information to determine if new competitors can easily enter your industry. If so, start thinking of ways you can continue to offer better products and services and further differentiate yourself from competitors.
Looking over company profiles and research reports on other companies or industries can be insightful, but the competitive forces model gives you an intimate, more useful view of the competitive landscape and what might impact your business. Market research reports and the like can quickly become outdated, so doing it yourself really is the best approach.
Analyze, grow, repeat
It’s easy to read industry statistics and feel confident in your company’s performance and business plan. But, consumer markets vary from place to place, and even worse, they change on a dime. The only way to ensure you’re making the right move for your company is to perform your own analysis.
Your first research push can be overwhelming, but if you take your time and carefully follow one of the trusted models, you’ll wind up in a more knowledgeable and prepared place with your business. There are more than 30 million small businesses in the United States, but only one of them can be called yours. Go forth with your research and take your business to the next level. You’ve earned it.