If you are looking to enter a new market or to redefine your positioning in an existing market, a thorough analysis of your competitors’ performance and financial health is essential.
From a tactical point of view, if you are planning to sneak up on sleepy incumbents or to outmarket spunky new entrants, it is important to understand their marketing channels. To familiarize yourself with some of these competitive research techniques, take a look at my post about learning your opponent’s marketing strategies.
Competitive Analysis: 4 Things to Actively Study
Even if you are absolutely owning the market, studying your competitors’ performance will tell you a lot about the future of your market. Here are some ways you can glean valuable information by studying your rivals:
1) Analyze your competitor’s revenue and growth rates
Your competitors’ aggregate annual revenue is a good measure of your market size. Their growth rates indicate whether the market is still growing, already mature, or even in decline.
If there are many competitors of relatively small revenue scale, then the market is still fragmented and there is an opportunity for market consolidation. If a few large competitors dominate the market, then your best bet strategy will be to find a niche to grow into before taking on these competitors directly.
2) Analyze your competitors’ product functionality and differentiation
Try and get your hands on your competitors’ products, or get third party experts to evaluate their level of differentiation and sophistication. In turn, you will gain insight into whether the market is truly mature, (when leading products are very close together with minimal differentiation) or whether the market is still evolving. There are opportunities and challenges in both cases:
- Mature markets: there will be the chance to dramatically rethink the product approach and disrupt the existing market players
- Evolving market: there will be an opportunity to be best-of-breed and set the gold standard for competitors
3) Analyze your competitors’ messaging and product positioning
Parsing through your competitors’ marketing messages will allow you to infer what their customers are looking for and how these customers are thinking about the solutions offered. If the messages are about costs or ROI, then the market is probably dominated by sophisticated buyers who have clear ideas of what they are looking for. If the messages are about functionality, then the market is dominated by technical innovation. If the messages are about convenience or customer experience, then the technical innovation stage is winding down, and companies now compete to provide a fully differentiated solutions set.
4) Follow M&A activities
M&A activities are the outward manifestation of strategic maneuvering and long term planning by large players and investors in the market. M&A volume and valuation reflect the level of attractiveness of the market. For example, a wave of strategic acquisitions indicates that your market has some highly unique assets that are valued highly by the financial markets.
Keep your eye out for competitors with:
- a far-reaching patent portfolio
- network effects
- access to a strategic client base, etc.
In a new market, elevated valuations suggest that there are high barrier to entries (either because of technology or distribution), and that large incumbents are unable to enter the market organically. Understanding their weaknesses will let you figure out better positioning to win over their market shares.
What are some of the ways that you study your competition? Tell us in the comments below!