Understanding competitor analysis
Competitor analysis is the examination of your competitors – both close and distant – to understand your competitive landscape. This can range from very systematic analysis – trying to build an accurate picture of the entire landscape – to more ad-hoc examination – gradually trying to build a picture of certain firms.
Why competitor analysis is important
A central theme in strategy is the importance of being distinct from competitors – having unique reasons why customers would choose your firm over others, and potentially be willing to pay a premium to do so. This need not necessarily mean being the most expensive offering (indeed, being a cost-leader is one way of competing), but there should be some reason, be it price, features, or service, that distinguish, or differentiate, your firm from others in the market.
Achieving this distinction requires some level of knowledge of what your competitor’s offerings are. This insight is fundamental to ensuring your distinctiveness – ensuring that there are some key dimensions that would cause customers to choose your firm over others in the market.
Responding to competitor actions
Another reason why competitive analysis is important is that it gives you a greater opportunity to respond to the actions of your competitors. Rather than waiting until key actions of competitors are at the final stage of implementation, developing an understanding of their actions in advance can give you a greater opportunity to respond ahead of time. This may be the difference between coming out ahead, and being caught unaware following a major competitor’s action.
Learning from competitor actions
Another opportunity of competitor analysis is learning from their actions – both things that worked out well, as well as actions that did not work. This can help ensure that you are not repeating their mistakes – as well as being aware of successful actions that you may want to incorporate (or respond to).
Avoiding industry over-capacity
A final reason why competitor analysis is important is that it can help ensure undesirable investments – such as further capacity increases in what is already likely to be an over-capacity industry. If a competitor announces that they are making a major investment in a new facility, this may make it unadvisable for you to undertake a similar investment.