What is a competitive analysis?

Competitive analysis is the methodical process of comparing your business to your competitors. 

Facing off with the competition can be nerve-wracking. What if your competitors do something you don’t? What if they offer more than you think your business ever could? 

But if businesses want to improve their products, services, and features, they can’t shy away from these questions. Competition, after all, drives us to do better. 

And when businesses provide better products and services, they’re more likely to supercharge customer acquisition and retention.

In this article, we’ll talk about what competitive analysis is, why it’s important, and how to do it for your business. 

Why is competitive analysis important? 

Competitive analysis is crucial because it gives businesses a clear picture of where they stand in the market. 

When you know where your competitors are lacking, you can identify your competitive advantage. Knowing this helps you draw in customers who might otherwise give their business to a competitor. 

But a quality competitive analysis will have another goal: to find out what your competitors are doing better than you are. With this information, you can elevate your offerings and become a more attractive choice for consumers. 

Here’s an example of the power of competitor analysis. Back in the 1970s, airlines in the United States were trying to figure out how to retain customers by rewarding them for their loyalty. Airlines tried handing out things like plaques and discounts to their most devoted customers, but nothing stuck.

Everything changed in 1981 when American Airlines debuted its frequent flyer program (FFP). Named AAdvantage, the FFP rewarded customers with miles for each flight they took.

The program clicked with customers. By 1982, Delta, United, Continental Airlines, Air Canada, and British Airways all had their own version of an FFP. They saw American Airlines’ success, compared it to their lack of a similar program, and raced to fill that gap. 

Now, frequent flyer programs have evolved into credit card rewards programs, and they’re a strong driver of revenue for airlines.

In 2023, the AAdvantage affinity card program drove roughly $3.5 billion in revenue. United’s MileagePlus program earns a hefty chunk of its overall revenue, too—according to the company, it accounted for $5.3 billion in sales in 2019.

And in 2022, Alaska Airlines reported a record almost-$1.5 billion in revenue from its credit card rewards program.

Your organization can leverage competitive analysis to identify profitable gaps, too. 

How often should I perform a competitor analysis?

Most organizations can benefit from running a competitor analysis at least once a year.

Your timing can vary depending on the dynamics of your industry, the growth stage of your business, and changes in market conditions. Here are some general guidelines for when to run a competitive market analysis:

• Highly competitive and fast-changing industries: In industries like technology and fashion, consumer preferences change all the time. If you're part of a fast-paced industry like this, consider running quarterly analyses. Some people might even suggest monthly analyses, but this doesn’t give you much time to actually implement the things you’re learning. 

• Stable industries: If things don’t change too much in your industry—education, manufacturing, construction—doing a deep dive once a year might be enough. Just keep your eye on the market and consider running a new analysis if something big shakes things up. 

• During growth phases and new market entry: If your business is in a growth phase or planning to enter new markets, consider semi-annual competitor analyses. Instead of doing yearly or quarterly checks, analyze the competition every six months or so.

• After big changes in your industry: Anytime there's a major event—like new regulation or tech advancements (hello, generative AI)— take a fresh look at the landscape.

How to do a competitive analysis in 5 easy steps

Running a competitive analysis is surprisingly straightforward. All it takes are five key steps.

1. Identify your competitors 

Start by identifying your competitors. For market research, they fall into three categories:

• Direct competitors: Businesses that offer products or services similar to yours. They target the same customer base and meet similar needs. A toe-to-toe comparison with direct competitors will show you areas where you can improve or differentiate your products.

  • Example of direct competitors: Starbucks vs. a local coffee shop on the same street

• Indirect competitors: Companies that solve the same problem you do but in a different way. Recognizing indirect competitors helps you see a broader picture of the market. 

  • Example of indirect competitors: Starbucks vs. Jamba Juice

• Emerging competitors: New entrants in your industry or sector. These emerging players can quickly become significant competitors. This is especially true if they bring innovative solutions to the table—ones you hadn’t thought of before. Monitoring these newcomers helps you stay ahead.

  • Example of emerging competitors: Starbucks vs. Dutch Bros

To keep things from getting overly complicated, focus on comparing yourself to one of each competitor type at a time. Or, if you have the time and resources—and you’re in a fast-paced industry—try two of each. 

2. Gather information

Now it’s time to channel your inner Sherlock Holmes and investigate everything you can about your competitors. In this step, you’ll collect information about each competitor, one by one. 

Here's where to look and what questions to ask: 

• Website: What products or services does your competitor offer? Look into the features of their offerings. What specific functionalities or benefits do they provide? How much do these products or services cost? 

• Blog: What’s their content strategy? How often do they post? What keywords do they use?

• Social media: How do they interact with customers (or not)? What type of content do they share? Do they address customer feedback in the comments section?

• Industry reports/market research publications: How well are your competitors performing, according to reports in databases like Statista and IBISWorld? What strategic moves have they taken recently? What market trends are they capitalizing on?

• Customer review sites: What do customers on Yelp, Google, and social media review sections have to say about your competitors? Where do they excel? Where do they fall short?

Set up Google Alerts for your competitors and keep tabs on any new updates. Make sure you keep the quantitative and qualitative data organized—and separate for each competitor you study.

3. Define unique selling points (USPs)

Understanding what makes your competitors stand out is key to setting your business apart. Now that you’ve gathered information about your competitors, it’s time to drill down into each competitor’s unique selling point (USP).

In other words, what are they claiming makes them special? 

It could be anything—maybe they're highlighting top-notch product quality. Or maybe they're particularly proud of their standout customer service. Check out their marketing materials, website content, and customer reviews to get a clear picture of these unique elements.

You can even run an online focus group or survey to ask respondents in your target market what makes your competitors stand out. 

Once you’ve identified competitor USPs, think about why the selling points resonate with customers. Are they solving specific problems or meeting unique needs?

Compare these USPs to your own offerings. Where can you differentiate your business and strengthen your USPs?

4. Evaluate sales tactics 

Understanding your competitors’ sales tactics can help you see if you're missing out on a profitable channel or strategy.

First, look at the channels they use to sell their products. Are they mainly selling online through their website or platforms like Amazon? Do they have physical stores, or are they relying on direct sales through events and sales teams? 

Knowing where they’re selling helps you spot opportunities to compete—or to expand your own sales channels.

Next, check out their promotions. What kinds of discounts or special offers do they use to attract customers? Are they running seasonal sales, loyalty programs, or offering bundle deals?

Now, ask yourself if there are sales strategies your competitors use that you want to try for your business. 

5. Conduct a SWOT analysis 

A SWOT analysis is a simple tool to identify the strengths, weaknesses, opportunities, and threats related to a business or project.

Conduct a SWOT analysis for each competitor after you've done the previous four steps. A SWOT analysis takes everything you've learned about your competitors and organizes it into manageable bites:

• Strengths: List out what your competitors excel at. Knowing their strengths helps you understand what makes them successful and what you might need to match or exceed.

• Weaknesses: Look for areas where the competition falls short. Is there a flaw (or three) in their overall user experience (UX)? See if you can turn these weaknesses into strengths and selling points for your business.

• Opportunities: Now that you've analyzed the competition, what opportunities can you identify? What market gaps have they failed to address? These are areas where you can capitalize on your competitors’ weaknesses.

• Threats: Take note of the threats your competitors pose to your business. Are they consistently launching new products in a way that's impossible to keep up with? Are they expanding into your territory? Do their marketing campaigns seem to dominate the market? Work with your team to address and mitigate these threats.  

If you haven’t taken advantage of third-party insights yet, the SWOT analysis step is the place to do it. 

There’s danger in relying solely on your perceptions of another company’s strengths and weaknesses. Or your company’s strengths and weaknesses, for that matter. Doing this can lead to confirmation bias.

As philosopher Uwe Peters writes in a paper for Erkenntnis, "What Is the Function of Confirmation Bias?", no one is spared from this "built-in feature of the mind" that persists "independently of [their] intelligence, cognitive ability, or motivation to avoid it". 

We can’t escape our tendency towards confirmation bias. That's why it's so important to seek competitive analysis perspectives from people who aren’t invested in our organization.

So run online surveys, focus groups, and interviews. Ask customers in your target market to evaluate SWOT for you and your competitors. Our tips for recruiting survey participants can help you get started.

Pair this candid feedback with your own assessments and you’ll be on your way to well-balanced insights all around. 

A competitive analysis template

One of the easiest ways to stay organized throughout this process is to keep a separate document to jot down the research you gather for each company. You can copy/paste the five tips above into a Google doc, for example, and type in your own research as you accumulate it. 

Once you’ve done all this legwork, tidy it up by inputting everything into a competitive analysis template. 

Competitive Analysis Chart Template

You can copy and paste this template into a separate spreadsheet or doc, and add more columns based on the number of competitors you'd like to analyze.

Key takeaways

Are you ready to find out what your business can do better—and what already sets you apart? Let these key takeaways guide you: 

• Competitive analysis is a must if you want to stay ahead. You know that old saying—keep your friends close and your competitors closer? Okay, we know, it doesn’t actually go like that. But we like the way it sounds. And it’s one of the best ways to stay in tune with market trends, improve your offerings, and identify your USPs.

• Conduct a competitive market analysis at least once a year. Or more often, especially if you’re entering a new market or part of an industry that seems to evolve every time you blink. 

• Competitor analysis takes just five steps: 

• Identify your competitors

• Gather information

• Define USPs

• Evaluate sales tactics

• Conduct a SWOT analysis

• Use a template to help organize your findings. We’ve provided a copy-paste template you can use to make comparisons quick and easy. 

Finally, remember to include outside viewpoints in your research. Confirmation bias won’t get you anywhere, but honest perspectives will. 

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