Keeping an eye on your competitors
Very few businesses have a monopoly, as almost any product that is worth buying or selling will generate competition. But you need to have a detailed understanding of the products and services offered by your competitors, given that strong competitors could poach some and perhaps all of your business.
A business usually strives to offer a product or service that is unique. That is the best defense against competition. Where products are not unique, they should have features that are at least distinctive or more attractive in some way.
You need to decide what basis you are competing on. Is your competitors’ packaging more attractive? Are their products better distributed and easier for consumers to obtain? Does their product do the same job at less cost? Does it come with extras? Will customers be attracted by higher service standards?
You can only assess your competitors’ products if you understand who your customers are and what they want.
For example, are you selling to people on limited incomes who will make choices based on price? Or are you selling to people with lots of spare cash and an eye for quality? Many small business owners have a gut feeling for whom their customers are, but research can come up with some surprising results.
You can survey your customers, analyze data you collect through sales, or study publicly available statistics that will give information such as the average age and income levels of people in your neighborhood.
Having identified who your customers are, you then need to identify your direct competitors. Direct competitors are businesses that sell a very similar product to the same customer base.
For example, restaurants located in the same neighborhood are likely to be in direct competition with each other. Smart restaurant owners will have a detailed knowledge of what their competitors are offering and how they could improve to attract customers.
Are their competitors offering a similar menu at a lower price? Is their service better? Do they accept a wider range of credit cards? Is the atmosphere in their restaurant more pleasant? Does their competitor have a location with a beautiful outlook, for example, and do they need to offer something distinctive to compensate for that?
You also need to consider your indirect competitors. Indirect competitors do not offer exactly the same product or even sell to exactly the same kind of customers, but they can nevertheless take business away from you.
For example, fast food outlets could be indirect competitors to a restaurant. Customers who just want a quick meal are likely to use the fast food outlet, which may have the added advantage of providing toys and gifts for children. A restaurant could try to win some of this business by offering a home delivery service, with some distinctive gifts or tokens of their own.
You need to maintain a detailed knowledge of your competitors. You should study your competitors’ advertising and analyze which customer group they are appealing to. It’s good to be aware of forthcoming marketing campaigns by competitors and to plan a response.
The financial strengths and weaknesses of a competitor are also important. As a smaller company you are ill advised to try and outspend a larger company on advertising. But you can gain an advantage by marketing to a specific niche.
Small companies tend to be more flexible than large companies and they can bring out new products more quickly or tailor existing products to suit market changes. Finding a niche market is a useful strategy for a small company faced with big competition, as smaller companies tend to carry a larger proportion of overheads and have difficulty undercutting larger competitors on price.
You can learn a lot by keeping your eyes and ears open, talking to customers, talking to suppliers, visiting your competitors’ websites and sampling and analyzing their products and services. You can also gather information from trade associations, industry publications and information freely available from the government.
Keeping a close eye on your competition can be a lot of work but it’s a business necessity.
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